Strong Jobs, Soft Inflation - The Delicate Balance in the U.S. Economy

This week we highlighted that on the economic front, the labor market showed remarkable resilience. Nonfarm payrolls increased by 177,000 jobs during April, beating all Bloomberg consensus estimates, although data for the previous two months were revised downward by a total of 58,000 jobs. The unemployment rate held steady at 4.2% and labor participation rose slightly from 62.5% to 62.6%. Meanwhile, hourly earnings grew 0.2% monthly, below expectations, suggesting that inflationary pressures on the wage side remain contained. At the same time, the labor cost index rose 0.9% in the first quarter, confirming that wage inflation remains at moderate levels. The most recent data on the core PCE price index, the Federal Reserve's preferred index, showed a zero monthly change in March and a year-on-year decline from 2.7% to 2.3%, consolidating a downward trend in prices before the possible inflationary impact of new tariffs.

Regarding the economy, a first reading of 1Q25 GDP showed a contraction of 0.3% quarter-over-quarter, dragged mainly by a pre-tariff increase in imports, which negatively affected the net calculation. However, consumer spending grew 1.8% annualized, less than 4Q24's 4% but better than expected, pointing to some strength in domestic demand. In the housing market, the national Case-Shiller index of home prices showed a 3.9% year-over-year increase in February, while consumer confidence, as measured by The Conference Board, fell sharply to 86.0 in April from 93.9 in March, its lowest level in nearly five years.

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