The April US core PCE price index, the Federal Reserve’s preferred inflation gauge, rose 0.1% month-over-month, matching expectations. On a year-over-year basis, core PCE increased 2.5%, also in line with forecasts. The prior month’s figures were revised slightly higher, with core PCE YoY adjusted to 2.7% from 2.6%. Headline PCE rose 0.1% m/m and 2.1% y/y, just below the 2.2% forecast, indicating some easing in price pressures. Core PCE excluding food and energy also rose 0.1%, while service prices excluding energy came in flat, down from 0.2% previously. Overall, good data.
In addition to the inflation data, personal income surged 0.8%, beating the 0.3% estimate and continuing a strong two-month trend after a prior upward revision to 0.7%. However, personal consumption rose just 0.1%, down from 0.7% in March, though inflation-adjusted consumption held steady at 0.2%. Strong income bodes well for the consumer.
The caveat for inflation: While the April data shows inflation largely under control, WSJ’s Nick Timiraos noted two headwinds that could push future year-over-year figures higher.
- First, low monthly PCE readings from mid-2024 will soon roll off the 12-month calculation window, mathematically raising YoY comparisons.
- Second, tariffs may introduce new inflationary pressures moving forward.
With a string of soft monthly data starting in May 2024, upcoming MoM prints of 0.2% or more in headline or core PCE would likely lift annual inflation readings further. So it is likely PCE data has reached a low for now. The Fed and the market will have to deal with that dynamic going forward.
The U.S. advance goods trade balance data was also released today for April 2025, and it showed a significant improvement, with the trade deficit narrowing to -$87.6 billion from -$162.3 billion in March (nearly a halving of the prior month), a decrease of $74.6 billion. This marked a substantial reduction compared to the forecasted deficit of $143 billion.
Change in Imports and Exports:
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Exports: Goods exports increased by $6.3 billion to $188.5 billion in April from $182.2 billion in March.
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Imports: Goods imports decreased dramatically by $68.4 billion to $276.1 billion in April from $344.5 billion in March.
Reasons for the Dramatic Change:
The significant improvement in the trade balance was primarily driven by a sharp decline in imports, coupled with a modest increase in exports. While specific reasons for the import drop are not fully detailed in the provided data, it seems tariff induced inventory accumulation may have reached its peak for now at least.
As a result of primarily the trade data, the Atlanta Fed GDPNow growth estimate for Q2 surged to 3.8% from 2.2%.
Later in the morning the Univ. of Michigan consumer sentiment in May held steady at 52.2, matching April’s level and coming in above both the preliminary reading of 50.8 and the 51.0 estimate. This marks a stabilization after four consecutive months of sharp declines. The current conditions index came in at 58.6, slightly below last month’s 59.6, while expectations improved to 47.9 from a preliminary 46.5 and prior 47.3—still the second-lowest reading of the year.
Inflation expectations moderated. One-year inflation expectations declined to 6.6% from the 7.3% preliminary figure (and just above last month’s 6.5%), marking the smallest month-over-month increase since the election. Five-year expectations dropped to 4.2%, down from 4.6% preliminary and 4.4% last month—the first decline since December 2024.
According to survey director Joanne Hsu, sentiment was buoyed late in the month by the temporary pause in some China tariffs, which improved expectations for business conditions. However, these gains were offset by weaker assessments of personal finances, tied to stagnant incomes. Consumers generally remain concerned about the future, and while trade policy clearly influenced sentiment, the tax and spending bill in Congress has yet to register with the public.
IN the farewell press conference to Elon Musk – who sported a black eye that he said was a result of horsing around with his son – President Trump reiterated the importance of tariffs and expressed satisfaction with the recent appeals court decision supporting his position. He commented on Elon Musk’s ongoing involvement with DOGE, calling it “his baby,” and noted that many within the team will stay on. Trump also emphasized that budget cuts will continue in a precise, surgical manner, with the effects expected to become clear in the long term.
On foreign policy, he stated that a Gaza deal is close, and there is a real possibility of a breakthrough with Iran in the near future. Iran has expressed other views, but who really knows. Turning to domestic issues, he expressed his desire to see a larger tax cut in the House bill and suggested that Harvard’s funding should be redirected to support trade schools.
Regarding international relations, Trump described Putin and Zelenskyy as both stubborn. He reported that his recent meeting with Fed Chair Powell went well, and while he expects to speak with President Xi of China, no specific time has been set for that conversation, but he has hope a deal can be made.
The calmer comments on Xi and China during his press conference came after a morning sharply worded post, where President Trump claimed that China was facing grave economic turmoil just two weeks ago, brought on by the high tariffs he imposed, which he said made it “virtually impossible” for China to trade into the U.S.—the world’s largest marketplace. According to Trump, this abrupt economic pressure led to widespread factory closures and even civil unrest in China. Wanting to avoid further destabilization, he said he made a quick deal with Chinese leadership to help prevent a worsening crisis. While this deal initially brought stability, Trump now accuses China of having “totally violated” the agreement, expressing frustration with what he sees as a betrayal despite his efforts to be “Mr. Nice Guy.” His tone suggests a hardening stance on trade enforcement going forward.
Midday, Bloomberg reported that US was mulling wider China tech sanctions with a subsidiary crackdown.
The deals – especially with China and the EU will continue – but once, no new trade deals were completed.
The US stock market closed mixed today but higher for the month.
- Dow Industrial Average, +54.34 points or 0.13% at 42,270.07
- S&P down -0.48 points or -0.01% at 5911.69
- Nasdaq down -62.11 points or -0.22% at 19113.77
The Russell 2000 closed lower by -8.49 points or -0.41% at 2066.26
For the trading week, the indices all closed higher:
- Dow rose 1.60%
- S&P rose 1.88%
- Nasdaq rose 2.01%
- Russell 2000 rose 2.01%
US yields closed lower:
- 2-year yield 3.899%, -3.7 basis points
- 5-year yield 3.959%, -3.8 basis points
- 10-year yield 4.398%, -2.6 basis points
- 30-year yield 4.924%, +0.1 basis point.
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