Get Ready for Increased Market Swings This Week: The Economic Forecast Unveiled

(The Center Square) - The information released this week will provide new insights into the job market and the current condition of American consumer finances. Despite the stock market showing slight gains and Treasury yields declining last week due to optimism about a potential U.S.-China trade agreement, maintaining the status quo could continue to cause short-term difficulties for consumers and slow economic growth heading into 2024.

Customers Are Cutting Back - and Expansion Might Decelerate Even More

Personal Income and Personal Consumption Expenditures Report

As uncertainty about policies increased during the initial 100 days of the new administration, consumer confidence dropped sharply—driven by concerns over rising costs due to tariffs and diminishing employment opportunities.

When consumers anticipate higher prices down the line, they often choose to accelerate their purchases of products and services sooner rather than later. Even before the imposition of tariffs, inflation was showing signs of picking up again; the Personal Consumption Expenditures (PCE) Price Index has risen by 2.5% compared to last year. However, month-to-month inflation at an annual rate of 4% surpasses both the three-month rate of 3.8% and the six-month rate of 3%. Research conducted by the Federal Reserve Bank of San Francisco suggests that many of these upward movements can be attributed to elements affecting the supply side.

On the consumer front, people in the U.S. have become more frugal; the personal savings rate increased from 3.3% in December to 4.6% recently, indicating that families feel financially strained and anticipate that tariffs will significantly impact their job security and actual income potential.

Fed Perspective

Federal Reserve Governor Christopher Waller recently pointed out that tariffs act as a form of taxation, which might dampen demand during the latter part of this year. While he might overlook the immediate rise in prices due to these tariffs, diminished demand has the potential to increase unemployment levels—how significant and rapid this change turns out to be will determine when interest rates are cut again. “Nobody likes extra taxes,” he remarked. With substantial federal government budget deficits, maybe such measures were necessary after all. Whether this was an effective strategy for reducing the budget deficit remains unclear; we’ll just have to wait and see!

This Week’s Headline Event: The Initial Employment Report Following “Freedom Day”

Even with the lowest hiring rate in ten years, job vacancies have remained consistent between 7.1 and 7.6 million during the last half-year, while the unemployment rate has stayed within the range of 4.1% to 4.2%. Due to growing concerns among companies about policy unpredictability, employment expansion likely decelerated in April.

In Other Economic News

Construction Spending

It is probable that construction activity decelerated in March, primarily due to a significant 11.4% decrease in home building.

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