A Downbeat Business Climate
The ISM Manufacturing index has declined for 4 consecutive months, and reached 48.6 in April (-0.2pp). Production, employment and new orders were all in contraction territory. The price-paid index (69.8) stood at its highest since 2022. Meanwhile, the ISM Non-Manufacturing index remained positive but slowed (50.8 in March vs. 54.1 in December 2024).
Households Increasingly Pessimistic
The key measures of household sentiment have deteriorated significantly and uninterruptedly since the end of 2024. Expectations, at their lowest since 2011 according to the Conference Board (54.4 in April), have dropped. Inflation expectations hit multi-decade highs at 1 year (+6.5%) and 5-10 years (+4.4%) in April according to the University of Michigan.
Labour Market: Better Than Balanced
In April, nonfarm payrolls grew by a solid +177k (-7k). The 6-month moving average variation has been underlining the robustness of the job market, after the strong rebalancing of 2022 - 2023. The unemployment rate, at 4.2%, remained below the estimate of its natural level (4.3%).
A (Temporary) Improvement in Inflation
Headline inflation, as measured by the CPI, eased in March, to +2.4% y/y (-0.4pp), driven by energy and hotels. Core inflation, at +2.8% y/y (-0.3pp), reached its lowest level since March 2021. However, the Fed is unlikely to resume monetary easing due to the risk of accelerating inflation and the strength of employment.
GDP Contraction in Q1 2025 (-0.1% q/q, vs. +0.6% in Q4 2024) - the first in three years
Imports of goods (+10.9% q/q, the highest since 1972 excluding the post-Covid reopening), lower public spending (-0.4% q/q) and slower household consumption (+0.4% q/q, compared with +1% in Q4) explain this result. The sharp rise in inventories (contribution of 0.8pp in Q1) should weigh on growth in Q2 (GDPnow suggests +0.3% q/q).
Article completed on 2 May 2025
