Weekly Economic Review | June 2, 2025

Economic Review

The Labor Department reported that initial jobless claims rose more than expected last week, with gains in both initial and continuing jobless claims. First time claims in regular state programs recorded 240,000 for the week ending May 24^th, after the prior week’s report of 226,000. The four-week moving average declined to 230,750 from 231,000 the prior week. Continuing claims, a proxy for people who are already receiving benefits and still cannot find a job, increased 26,000 to 1,919,000 for the week ending May 17^th. This is the highest level since November 2021, though the level is only about 50,000 higher than the average of the last 6 months. The gain suggests that workers who have been laid off are having a harder time finding a new job. The insured unemployment rate, the number of people currently receiving unemployment insurance as a percentage of the labor force, increased to 1.3% from 1.2%.

The Commerce Department reported durable goods orders, which are bookings for goods and materials meant to last at least three years, declined sharply in April. This follows a period of time where businesses front-loaded purchases ahead of tariffs. The report also shows that businesses have no desire to commit to long-term expansion plans given elevated uncertainty and volatility around trade policy. Orders dropped 6.3% in April after gaining 7.6% in March. Excluding transportation, durable orders gained 0.2% in April after declining 0.2% the prior month. The non-military capital goods orders excluding aircraft, a proxy for business investment, decreased 1.3% in April after climbing 0.3% in March. The ratio of inventory to shipments dropped to 1.95 from 1.96 in March.

The Federal Housing Finance Agency reported the house price index of purchase-only homes declined 0.1% in March after remaining unchanged in February. The year-on-year change in the house price index was 3.7% in March. The HPI is estimated using repeated observations of housing values for single-family homes on which at least two mortgages were originated and subsequently sold to Freddie Mac or Fannie Mae. The use of repeat transactions on the same unit helps to control for differences in the quality of the houses.

The S&P CoreLogic CaseShiller home price index fell 0.12% in March after gaining 0.40% in February. The index increased 4.07% from the same month in 2024. This is the first drop in prices in two years. This index includes homes of all prices, while the sample for the FHFA index is based only on confirming mortgages, which leaves out much of the upper end of the housing market. The index tracks changes in the value of homes in 20 metropolitan regions.

The Conference Board’s consumer confidence index rebounded sharply in May from a near five-year low as the outlook for the economy and labor market improved amid a truce on tariffs. The index recorded a 98.0 in May from a downwardly revised 85.7 reading in April, previously reported as 86.0. The measure of expectations for the next six months surged to 72.8 in May from 55.4 in April. The present situation index increased to 135.9 in May from 131.1 the previous month.

The FOMC Minutes for the May 6^th-7^th suggest policymakers agreed on a cautious approach to monetary policy amid elevated uncertainty regarding trade, fiscal, regulatory and immigration policies. Tariffs were expected to boost inflation “markedly” this year and drive the unemployment rate above its estimated natural rate. The policymakers saw the odds of a recession as “almost as likely as the baseline forecast”, which already includes lower growth from previous projections.

The second estimate by the Commerce Department of the 1^st quarter gross domestic product indicated the US economy shrank at the start of the year due to weak consumer spending and impacts from trade. Consumer spending, the economy’s primary growth engine, advanced 1.2%, down from an initial estimate of 1.8% and the weakest pace in almost two years. Net exports subtracted nearly 5% points from the GDP calculation, slightly more than the first projection and the largest on record. Gross domestic product contracted at an 0.2% annualized rate in the 1^st quarter, higher than the previous estimate of -0.3%. Personal consumption, which accounts for about 70% of the economy, fell to a 1.2% annualized pace compared to earlier estimates of 1.8%. The core PCE deflator, which is closely watched by the Fed, was 2.5%, lower than the earlier estimates of 2.7%. The GDP price index gained 3.7% in the 1^st quarter.

The National Association of Realtors reported the index of pending home re-sales decreased in April by the most since September 2022. Sales fell in all four regions with the West experiencing the biggest drop. The number of contract signings decreased 6.3% in April after gaining 5.5% in March. Pending home sales are based on houses under contract as reported by over 100 multiple listing services and 60 large real estate brokers. A sale is listed as pending when a seller accepts a sales contract on a property. Pending sales are a leading indicator in the housing sector as they reflect contracts signed, as opposed to actual closed and final sales.

The Commerce Department reported personal income gained 0.8% in April after gaining 0.7% the prior month. Personal spending climbed 0.2% in April after climbing 0.7% in March. Income growth is solid, while real spending slowed after consumers had loaded up on purchases earlier in the year to front-run tariffs. Prices rose modestly in categories with heavy exposure to imports from China, whereas disinflation in services partially offset those price increases. Monthly PCE inflation climbed 0.1% in April after remaining unchanged the previous month and year-on-year PCE declined to 2.1%. The core PCE Deflator, the preferred inflation gauge by the Federal Reserve, climbed 0.1% in April, bringing the year-on-year gain to 2.5%. Disposable income, or the money left over after taxes, increased 0.8% in April. The savings rate climbed to 4.9% from 4.3% in March.

The Commerce Department reported the goods trade deficit narrowed in April as imports plunged after many buyers front-loaded their purchases in February and March in front of threatened tariffs. The deficit decreased 46.0% to $87.6 billion in April after March’s surge. Exports increased 3.4% in April to $188.5 billion and imports decreased 19.8% to $276.1 billion.

The Commerce Department reported wholesale inventories remained unchanged in April at $906.9 billion. Year-on-year wholesale inventories have climbed 2.1%. Retail inventories decreased 0.1% in April to $803.5 billion, with year-on-year inventories up 3.5%.

The University of Michigan’s final index of consumer sentiment remained unchanged in May after falling for four straight months and long-term inflation expectations retreated as concerns about the economy eased after the rollback of China tariffs. The final sentiment index for the month remained unchanged at 52.2 in May. The long-term inflation expectations dropped to 4.2% from 4.4% the prior month. The one-year-ahead inflation expectations edged higher to 6.6% in May from 6.5% in April. The index of current conditions decreased to 58.9 from 59.8 the prior month while the index of expectations climbed to 47.9 from 47.3.

The Mortgage Bankers Association reported the MBA index of mortgage applications decreased 1.2% last week after dropping 5.1% the prior week. Refinancing applications declined 7.1% to 634.1 from 682.5 the prior week. Home purchase mortgage applications increased 2.7% to 162.1. Refinancing made up 34.6% of applications with an average loan size of $281,900, while purchases average loan size is $441,200. The average contract rate on a 30-year fixed-rate mortgage increased to 6.98% from 6.92% the previous week.

BOND MARKET REVIEW

Rates decreased last week after strong Treasury auctions and indications that inflationary pressures are receding. Friday’s yields for the 2-, 5-, 10- & 30-year Treasury benchmark securities closed at 3.90%, 4.00%, 4.40% and 4.93%. The 2yr/5yr, 5yr/10yr, 10yr/30yr and 2yr/30yr spreads closed at 6, 44, 53, and 103 basis points respectively.

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