First-quarter GDP data showed that the U.S. economy contracted slightly, while the ADP employment report showed hiring tumbled in April, Despite a soothing March reading of the Federal Reserve's primary inflation gauge, the S&P 500 is sharply lower.
This week's jobs data looms large for the Fed outlook as well as the stock market rally. The ADP employment report, which was the weakest since a hurricane-hit July report, has a spotty track record, but still gets attention as a preview of Friday's official monthly jobs report. Rising unemployment could give the Fed more flexibility to cut rates even as Trump tariffs are likely to pump up inflation in the months to come.
10:25 a.m. ET
Unrounded PCE Inflation Data
Core PCE inflation for 0.028% in March, rounding down to an unchanged reading. On a 12-month basis, core PCE inflation ran 2.646%, a touch warmer than the rounded version.
10:18 a.m. ET
S&P 500 Comes Off Lows
The surprisingly tame inflation reading for March seems to be giving the S&P 500 a lift. The index is now down 1.6%, after falling a bit more than 2% before the release of the March personal income and outlays data.
10:12 a.m. ET
PCE Inflation For March
While the core PCE price index ran hot in Q1, the Fed's primary inflation gauge ended the quarter in very cool fashion — with core prices unchanged in March. That lowered the 12-month core inflation rate to 2.6%, as expected.
9:15 a.m. ET
Employment Cost Index
The Federal Reserve's preferred gauge of wage growth showed compensation costs rising 0.9% in Q1, as expected, while the 12-month rate slowed to 3.6% from 3.8%.
That's consistent with the Fed's view that wage trends aren't contributing to inflation pressures.
8:49 a.m. ET
S&P 500 Futures Keep Falling, Yields Rise
S&P 500 futures are now down 1.4%. The 10-year Treasury yield has now advanced to 4.21%.
The weak economic data, along with hotter-than-expected inflation, offers a stagflation vibe even before Trump tariffs really start to hit the economy.
8:47 a.m. ET
GDP Details
Personal consumption expenditures rose at a 1.8% rate, the softest since the second quarter of 2023 and down sharply from Q4's 4% rate.
Spending on durable goods sank 3.4%, the worst in more than three years.
Fixed investment surged 7.8% amid a 22.5% jump in spending on equipment, which was likely related to tariff front-running.
Government consumption expenditures fell 1.4%, the first decline since Q2 2022.
8:46 a.m. ET
More On Q1 Inflation
Service prices rose at a 4.2% annual rate. Goods prices rose 2.2%, after falling the prior two quarters.
8:39 a.m. ET
Inflation Surprise in Q1 Report
The core PCE price index, the Fed's favored inflation gauge, rose at a 3.5% annual rate in Q1. That ran well above 3.1% forecasts, according to the Bloomberg consensus.
8:38 a.m. ET
S&P 500 Futures Extend Losses
In the wake of the April ADP Employment Report and the Q1 GDP data, S&P 500 futures fell 1%, slightly extending losses. The 10-year Treasury yield, which had been slightly lower, turned slightly higher, up 3 basis points to 4.2%.
8:35 a.m. ET
GDP Contracts, But Growth Underneath
The U.S. economy contracted at a 0.3% annualized rate in Q1, the Bureau of Economic Analysis said. But that paints a misleading picture of underlying growth.
Better to focus on real final sales to private domestic purchasers, which rose 3% in the quarter, up from a revised 2.9% in Q4.
ADP Jobs Report
Payroll processor ADP showed private employers added just 62,000 jobs last month vs. forecasts of 125,000 and down from a revised 147,000 in March.
On Friday, economists expect the monthly Bureau of Labor Statistics employment report to show 130,000 new jobs, including 125,000 in the private sector. The unemployment rate is expected to hold at 4.2%.
Q1 GDP
After Tuesday's trade data showed a record $162 billion goods deficit in March, economists slashed their forecasts for first-quarter GDP into negative territory.
However, that's a product of a surge in imports due to front-running of Trump tariffs and data limitations. In reality, economists believe that the surge in imports resulted in a corresponding surge in inventories. But inventory data is seen as less accurate and timely, so the combination will produce a negative GDP reading, economists believe.
Pay attention to final sales to private domestic purchasers, which may have slowed from Q4's 3% rate, but still likely points to solid underlying growth.
Fed Inflation Gauge
The core PCE price index is expected to rise just 0.1% in March, dragged down by lower prices for commercial air travel and hotel rooms. That likely reflects battered consumer confidence and a hit to tourism stemming from President Trump's America First policies.
The 12-more core inflation rate is seen easing to 2.6% from 2.8%. However, economists think a rise in goods prices starting in April will put upward pressure on inflation.
Fed Rate-Cut Odds
The key for Federal Reserve policy will likely be what happens to the labor market. If the unemployment rate starts rising, signaling labor market slack, the Fed may feel more leeway to cut rates.
As of Wednesday morning, markets see just 8% odds of a rate cut at the May 7 Federal Reserve meeting. Odds rise to 64% for a rate cut by June 18.
For the full year, markets have been pricing in deeper Fed rate cuts, with 68% odds of a full percentage point in rate cuts for the year.
S&P 500
S&P 500 futures are pointing down 0.7% early Wednesday. The S&P 500 is trying to extend a six-day winning streak facilitated by President Trump backing away from his more contention tariff moves and threats against China and the automotive sector.
The S&P 500 and Nasdaq have been moving toward their 50-day moving averages.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
