Week of April 28
Mind The Gap
The differences between the start, middle, and end of last week couldn’t have been starker. A poor consumer confidence read to start the week, GDP data in the middle showing that the U.S. economy contracted in the first quarter, and then finally a healthy jobs report on Friday.
How can one synch up all this? To start with, the jobs report showed that hiring has slowed over the last year, but as much as the labor market has bent, it’s not cracked. That’s great news. Take out the influx of imports due to tariffs fears and GDP growth would have been solid. So those two combined paints the picture of an economy that is holding together. Despite that consumers feel lousy. So, the question remains, can we talk ourselves into a recession? It’s a possibility for sure, but the data this week is firmly saying that we’re not there yet.
Important Data Points From The Past Week
Conference Board Consumer Confidence Index
Not surprisingly, consumer confidence plunged in April – falling 7.9 points from March. Consumers feel relatively sanguine on current economic conditions with that portion of the Index falling by less than one point. Their expectations on the future, however, are very dour with that portion of the Index falling to its lowest level since the fall of 2011.
The Expectations Index came in at 54.4 – well below the 80 threshold that usually signals a recession. That doesn’t mean that we are headed there though. Consumers have time and again used retail therapy to soothe their psyche and as long as the labor market doesn’t crater there is no reason to expect now will be different. Not to mention a swift reversal on tariff policies (and/or a pickup in the stock market) could reverse the negative vibes. Regardless, in some ways this feels different, and it emphasizes the tightrope we’re walking.
The U.S. economy contracted in the first quarter of 2025, falling 0.3% on an annualized basis from the fourth quarter. Not surprisingly, this was almost entirely due to a massive increase in imports as firms tried to pre-order stock before tariffs hit. Indeed, real final sales – which eliminates the volatility of trade and inventories – rose at a 3% annualized clip indicating not all is lost in the U.S. economy.
I wouldn’t be surprised if this Q1 decline gets revised up over the next couple of months to show Q1 being flat since inventories didn’t seem to grow by as much (or nearly as much) as imports did. So the question is, does this reading portend a recession. I would say no, BUT it’s clear the U.S. economy is walking a tightrope.
U.S. PCE Deflator
Aside from the GDP read, the Fed’s key inflation measure provided some welcome relief. The core PCE (excluding food and energy) was flat for the month and the all-important year-over-year rate fell from 3.0% in February to 2.6%. The same release also covers consumer spending, and it showed that consumer spending remained decent in March around a broad based improvement from February. This reinforces the final demand figure in the GDP report that indicated that outside of trade-related issues the U.S. economy continues to plod on.
U.S. Gross Domestic Product (GDP)
U.S. Construction Spending
Total construction spending put in place fell by 0.5% from February to March, with both nonresidential and residential spending falling. From a sectoral perspective, the gains were few and far between; but gains were made in data centers, amusement, public safety, transportation, conservation, water, and public residential.
Construction will continue to ease back over the remainder of the year but should not collapse since starts were reasonable solid in 2024. This month I did have to make some revisions to my forecast, I upgraded the data center, manufacturing and residential improvement forecast, but downgraded multifamily, highway and street, and traditional office. All in all, with those changes I’ve moved my 2025 total construction spending forecast from +3.3% to +4.3%.
U.S. Jobs Report
The U.S. economy added 177K new jobs in April, with the unemployment rate holding steady at 4.2%. The number was much better than expected, although the downward revisions to February and March took some of that away. For its part, construction also performed well, adding just over 11K new jobs, with civil and residential the only subcomponents posting a decline.
If you needed a sign that the U.S. economy is NOT in recession this, was it. Indeed, if not for the 9K decline in federal jobs during the month, the headline number would have been even better. Nearly two thirds of U.S. economic output is due to the consumer, and the fact that the labor market is holding strong should translate into no significant retrenchment over the next few months. I don’t think we’ll see increased spending, but certainly more of a crab walk.
What I’ll Be Watching This Week
It’s a quiet week on the data front. The FOMC will decide on what to do with interest rates, and Canada will release their April jobs numbers on Friday.
What I Watched Last Week
No denying that I’m a history nerd, and I’m always game for a great military documentary. We spent some time a couple of weeks ago at the 250th celebration of the Battle of Lexington in Lexington, MA – the shot heard round the world. This documentary goes into detail on how this hardscrabble group of farmers and merchants beat back the world’s most powerful empire.
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