A Disturbing U.S. Data Reality Check – Currency Thoughts
A Disturbing U.S. Data Reality Check
April 30, 2025
The last business day of April typically delivered a ton of data releases, but what stood out most was how abruptly U.S. economic activity slowed last quarter. In the wake of the Covid shock of 2020, U.S. GDP had expanded 6.1% in 2021, 2.5% in 2022, 2.9% in 2023 and 2.8% last year including 2.7% in the second half of 2024. There had not been negative growth in any quarter since 1Q 2022, and analyst were anticipated a fractional uptick in 1Q 2025 of less than 1%. However, reflecting a 4.8-percentage point drag from net foreign demand and a 7-quarter low in personal consumption expenditure growth, GDP dipped 0.3% at a seasonally adjusted annualized rate in the first quarter of the Trump presidency. Just as a single world — plastics — summarized the state of everything in the 1967 Mike Nichols’ film The Graduate, the current growth dynamic boils down to a similarly short word: tariffs. In a frenzy to beat their imposition, U.S. imports leaped by an astounding 41.8% last quarter, eclipsing a 1.8% annualized rise of exports. Personal consumption growth, the largest component of GDP, halved to 1.8% from a 3.9% pace in the second half of 2024. But that was not all that proved disturbing in the GDP report, because the PCE price deflation that Federal Reserve officials favor signaled a sharp intensification of price pressure to 3.6% overall from 2.4% in the prior quarter and 1.5% in the quarter before that. The core personal consumption price deflator tells a similar tale, printing at 3.5% after 2.6% and 2.2% in the prior two quarter, so the FOMC faces a very difficult challenge just ahead of balancing its mandate to both secure price stability and maximize employment.
Markets reacted poorly to this combination but seem to see growth as the more urgent problem.
- All the major U.S. stock indices show drops of more than 1%. Equities in Asia had extended the recent rebound with gains today of 0.7% in Australia and Singapore and 0.6% in Japan, but European markets have taken their cue from the United States, with losses thus far of 1.4% in both Spain and Italy.
- Ten-year sovereign debt yields have fallen five basis points in Germany, four bps in France, three bps in Spain, Italy and the U.K. and one basis point in Japan, but the U.S. 10-year Treasury yield remains unchanged on balance.
- Prices of oil (-1.3% and below the $60 per barrel threshold) and gold (-0.4%) are lower, but Bitcoin has edged 0.2% higher.
- Dollar movements have been mixed today, including increases of 0.6% against sterling and 0.3% versus the peso, no change relative to the yen and Canadian dollar, and a 0.6% drop versus the euro.
Among other U.S. data releases this Wednesday, ADP’s 62k estimate of the change in private sector jobs during April was half of what analysts were forecasting and the smallest monthly gain since last July. The Chicago regional purchasing managers index slumped 3 index points to a 3-month low of 44.6 in April. March increases in personal income (0.5%) and spending (0.7%) exceeded expectations, while the monthly PCE price deflator’s 12-month rate of rise slowed to a half-year low of 2.3%. The 20% spike in mortgage applications during the first week of April has now been more than offset by three straight weekly declines. Pending home sales jumped 6.1% in March, however.
In March, which coincides with the final month of Japan’s fiscal year, retail sales and industrial production recorded declines from February of 1.2% and 1.1%. Housing starts were 39.1% above their year-earlier level, their biggest such jump since late 2008, and construction orders were 3.5% above March 2024’s level. Japan’s February index of coincident economic indicators was revised higher to a 6-month high, while the index of leading economic indicators matched the preliminary figure, which had been at a 2-month low.
Euroland preliminary first-quarter GDP data were also reported today. The quarterly 0.4% growth rate was twice expectations and enough to keep year-on-year growth at the 1.2% pace recorded in the prior quarter and more than double the 0.5% in the first quarter of 2024. Growth in GDP among the four largest member countries last quarter was led by 0.6% in Spain, followed by 0.3% in Italy, 0.2% in Germany and 0.1% in France. In other reported euro zone economies, quarterly non-annualized growth rates printed at 0.6% in Lithuania, 0.4% in Belgium, 0.2% in Austria and 0.1% in the Netherlands, Finland and Estonia.
Swedish GDP flatlined last quarter, cutting the year-on-year pace to 1.1% from 2.4%.
In Eastern Europe, on-year growth rose to 2.0% in the Czech Republic but shrank 0.4% in Hungary.
Australian consumer prices rose 0.9% last quarter and ticked up 0.1 percentage point to a 2.4% year-on-year advance. But core CPI inflation slowed to 2.9% from 3.3% in the prior quarter and 6.8% at peak in late 2022.
French consumer price inflation stayed at 0.8% for a third straight time in April, but Italian CPI inflation rose to 2.0% from 1.9% in the prior month and a recent low of 1.5% in January.
German CPI inflation edged down to a 6-month low of 2.1% in April, but core inflation increased 0.3 percentage points to 2.9%. In contrast, German import price inflation sank to a 3-month low of 2.1% in March from 3.6% in February. Yet another German data release today showed a 0.2% monthly drop in March retail sales that depressed the 12-month increase to a 7-month low of 2.2%.
Ahead of the May Day observances, China released some purchasing manager figures early. The NBS-compiled manufacturing and service sector indices printed at a 3-month low of 49.0 and a 2-month low of 50.4, and the Caixin-compiled manufacturing PMI of 50.4 was at a 3-month low. These are lower than government officials had hoped, and more growth-supporting actions are promised in coming months.
By a 5-2 vote with dissents favoring no change, the Bank of Thailand‘s policy interest rate was reduced by 25 basis points from 2.0% to 1.75%. This marked the third such cut from a peak of 2.5% maintained for thirteen months until October 2024. CPI inflation in Thailand of 0.8% in March was below its 1-3% target range, but monetary officials are being careful and closely monitoring the risk posed by mounting trade tensions around the world.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: French and German CPI, Japanese retail sales and industrial production, U.S. and Euroland GDP growth in 1Q 2025, U.S. personal consumption and PCE deflator
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