It’s going to be a light week for economic events, as is usually the case following the release of the U.S. non-farm employment change data. On Monday, the U.S. will publish the ISM services PMI, and on Tuesday, its trade balance data which typically doesn’t attract much attention but is worth watching given the current tariff-related tensions.
On Wednesday, New Zealand will release its quarterly employment change and unemployment rate and later in the day we’ll have the highlight of the week—the FOMC monetary policy announcement.
The Bank of England’s monetary policy decision will follow up on Thursday, while the U.S. will get the unemployment claims report. The following day, Canada will release its own employment change and unemployment rate figures.
Remarks from several FOMC members are expected throughout the week.
In the U.S., the consensus for the ISM services PMI is 50.2, down from the prior 50.8. The outlook for the services sector is not very promising but compared to the manufacturing sector, it is still expected to remain in expansionary territory for now. This release will also provide insight into how tariffs are being absorbed.
Last month’s drop was one of the largest in nine months, driven by a significant decline in the employment component and a slowdown in both domestic and international orders, according to analysts from Wells Fargo. Although business activity remained relatively resilient, the overall picture is less encouraging, and further deterioration in business confidence could weigh heavily on the sector.
Regional Fed surveys have echoed signs of weakening service activity, while ongoing uncertainty around investment and supply chains continues to drag on growth momentum.
At this week’s FOMC meeting, the Fed is widely expected to keep rates on hold despite the latest economic data, particularly the soft Q1 GDP figures.
The labor market remains stable, and strong income growth continues to support consumer spending. However, analysts from Wells Fargo point out several cautionary signals: equity markets have declined, credit spreads have widened, and both consumer and business sentiment reflect growing concerns, especially regarding rising input costs and hesitation around investment.
The Fed will likely adopt a “wait and see” stance as the Committee evaluates the current economic landscape. There is no doubt that tariffs complicate the Fed’s mandate, exerting pressure on both inflation and employment.
Traders will closely watch for clues on how policymakers are balancing these risks. Wells Fargo analysts expect the Fed to begin lowering rates once tariffs start materially impacting hard economic data. They anticipate the first 25 bps rate cut to come in June, though they note this outlook could shift if trade tensions ease through carve-outs or new deals.
At this week’s meeting, the BoE is expected to deliver a 25 bps rate cut, lowering the policy rate to 4.25%. This move would continue the easing cycle of quarterly cuts that began in mid-2024.
Overall, U.K. data suggest some resilience in economic activity, and the Bank is expected to proceed cautiously. Traders will closely watch the updated Monetary Policy Report for insights into whether recent developments, such as the introduction of U.S. tariffs, are factored into the BoE’s outlook.
A significantly weaker growth forecast or inflation projections well below the 2% target would likely be required to shift expectations toward a faster pace of rate cuts.
In Canada, the consensus for the employment change is 24.5K, compared to the prior -32.6K, while the unemployment rate is expected to remain unchanged at 6.7%.
Canadian labor market conditions have started to show signs of strain following the imposition of U.S. tariffs in March. Employment declined, and a second consecutive monthly drop in the participation rate was recorded, with the unemployment rate rising to 6.7%.
Although the labor market hasn’t collapsed—unemployment remains below the 6.9% peak recorded late last year—ongoing softness in hiring demand, as indicated by declining job vacancies, suggests further deterioration ahead. RBC analysts expect the unemployment rate to gradually rise through the second half of 2025.
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