“Do more of What Work and Do Less of What Doesn’t” — unknown

1. U.S. and China agree to slash tariffs for 90 days in major trade breakthrough — The trade agreement means that “reciprocal” tariffs between both countries will be cut from 125% to 10%. The U.S.′ 20% duties on Chinese imports relating to fentanyl will remain in place, meaning total tariffs on China stand at 30%. The breakthrough comes after U.S. and China trade representatives held high-stakes talks in Switzerland over the weekend. The pause will begin Wednesday. Both China and the U.S. said they will continue discussions on economic and trade policy.
2. Monthly Inflation Ticked Up in Early Hints of Tariff Effects — The consumer-price index rose a seasonally adjusted 0.2% in April, the Labor Department said Tuesday. That matched the forecasts of economists polled by The Wall Street Journal. However, it was a turnaround from March, when month-over-month prices fell 0.1%. Year-over-year inflation cooled to a 2.3% increase in April, below the 2.4% that economists had expected and below March’s annual rate. A big decline in gasoline prices versus a year earlier helped pull that rate lower. Prices excluding food and energy categories—the so-called core measure that economists watch in an effort to better capture inflation’s underlying trend—rose 2.8%. That matched forecasts by economists.
3. US Producer Prices Fell Unexpectedly in April as Margins Shrank — The 0.5% decrease in the producer price index followed no change in March, Bureau of Labor Statistics data showed Thursday. The median forecast in a Bloomberg survey of economists called for a 0.2% gain. Excluding food and energy, the PPI declined 0.4% — the most since 2015. Stripping out food, energy and trade, a less-volatile measure favored by many economists, prices fell 0.1%, the first decline in five years. Compared with a year ago, the gauge rose 2.9%. The figures suggest American manufacturers and service providers are so far refraining from passing along higher US duties on imports. The impact on consumers has also been modest even as producers are feeling the pinch from aggressive levies on imported materials and other inputs.
4. US Retail Sales Barely Rise, Suggesting Some Spending Pullback — Growth in US retail sales decelerated notably in April, reflecting consumers pulled back spending on cars, sporting goods and other categories of imported goods amid concerns about rising prices from tariffs.
The value of retail purchases, not adjusted for inflation, increased 0.1%, Commerce Department data showed Thursday. That followed a a revised 1.7% gain in March, which was the largest in two years. Seven of the report’s 13 categories posted decreases, also restrained by apparel — another good which is largely imported — as well as gasoline. Car sales declined slightly after a buying spree in the previous month. Spending at restaurants and bars, the only service-sector category in the retail report, rose firmly for a second month.

The week ahead — Economic data from Econoday.com:

“Do More of What Works and Less of What Doesn’t” — unknown

1. U.S. Trade Deficit Hits Record as Companies Front-Load Pharmaceuticals — The U.S. trade deficit ballooned 14% to a record $140.5 billion in March, as businesses stockpiled goods to get ahead of sweeping tariffs that President Trump imposed the following month. The value of imported goods totaled $346.8 billion, according to Census Bureau data, continuing a sharp increase that began in January. Nearly all of the $22.5 billion surge in imported consumer goods for March were pharmaceutical products, which the Trump administration is currently considering to hit with tariffs. Imports of computer accessories, automobiles, and car parts and engines also increased.
2. Fed Warns of Rising Economic Risks as It Leaves Rates Steady — The Federal Reserve warned that the economy faced growing risks of higher unemployment and higher inflation due to tariff increases when officials agreed to hold interest rates steady on Wednesday. Tariffs represent a shock that can decrease an economy’s ability to supply goods or services while sending up prices. The unpredictable rollout of increased duties on imported goods threatens to sap profits and chill new investment until businesses have more clarity on their underlying cost structure. Expectations of a rate cut at the Fed’s next meeting in mid-June declined when Powell said officials felt like the costs of waiting to learn more about the economy were “fairly low.”
3. US Productivity Drops for First Time Since 2022 as Output Falls — Productivity, or nonfarm employee output per hour, decreased at a 0.8% annualized rate after a revised 1.7% increase in the fourth quarter, data from the Bureau of Labor Statistics showed Thursday. Because of the decline in productivity, unit labor costs — what businesses pay employees to produce one unit of output — jumped 5.7% in the January-March period, the most in a year. The retreat in productivity was largely due to a 0.3% decline in business output, foreshadowed by data last week showing a trade-related slide in gross domestic product, even as worker hours climbed. Over the near term, productivity gains may suffer somewhat as companies reconsider investment plans until there’s more clarity about US trade and tax policy.
4. Trump Hails UK Trade Framework as First of Many Tariff Deals — Under the agreement, Trump said Thursday the UK would fast-track US items through their customs process and reduce barriers on “billions of dollars” of agricultural, chemical, energy and industrial exports, including beef and ethanol. The British government said auto tariffs would be reduced to 10% and metals duties to zero. Trump and UK Prime Minister Keir Starmer said final details of the pact would still be negotiated over the coming weeks and statements from both governments made clear that many specifics were left to be resolved later.

The week ahead — Economic data from Econoday.com:

“It takes 20 years to build a reputation and five minutes to ruin it.” — Buffetts

1. U.S. Economy Contracts at 0.3% Rate in First Quarter — the Commerce Department said U.S. gross domestic product—the value of all goods and services produced across the economy—fell at a seasonally and inflation adjusted 0.3% annual rate in the first quarter. That was the steepest decline since the first quarter of 2022. Net exports, the difference between imports and exports, were a large drag on growth in the first quarter, stripping 4.83 percentage points from headline GDP. Imports increased at a 41.3% pace in the first quarter as businesses tried to get ahead of tariffs that began to come into effect during the first three months of the year and were dramatically increased in the current, second quarter. The GDP report is the first major economic scorecard for the January-to-March quarter, a period in which the White House changed hands from President Joe Biden to President Trump. January—most of which was before Trump took office—was hit by wildfires in Los Angeles and disruptive winter storms in many parts of the country.
2. US Manufacturing Activity Shrinks by the Most Since November — The Institute for Supply Management’s factory gauge eased 0.3 point to 48.7, data out Thursday showed. The group’s production index stumbled more than 4 points to 44. Readings below 50 indicate contraction. Prices paid for inputs, however, accelerated slightly. The figures illustrate an industrial sector struggling for traction as US tariffs and general uncertainty surrounding trade policy interrupt expansion plans. Orders shrank for a third month and backlogs retreated at a faster pace, consistent with subdued demand.
3. US Consumer Spending Jumps While Key Inflation Gauge Slows Down — Inflation-adjusted consumer spending climbed 0.7% last month, according to Bureau of Economic Analysis data out Wednesday. That was the most since the start of 2023 and suggested households spent aggressively to get ahead of new tariffs.
Meantime, the Federal Reserve’s preferred inflation gauge — the personal consumption expenditures price index — stagnated from a month earlier for the first time in nearly a year. Excluding food and energy, the so-called core PCE was also unchanged, the tamest in almost five years. The data round out a quarter in which the US economy contracted for the first time since 2022 on a monumental pre-tariffs import surge and more moderate consumer spending. The report earlier Wednesday also showed core PCE inflation accelerated to a 3.5% pace in the first quarter — the most in a year.
4. U.S. payroll growth totals 177,000 in April, defying expectations — Nonfarm payrolls increased a seasonally adjusted 177,000 for the month, slightly below the downwardly revised 185,000 in March but above the Dow Jones estimate for 133,000, the Bureau of Labor Statistics reported Friday. The unemployment rate held at 4.2%, as expected, indicating that the labor market is holding relatively stable. The survey of households, which is used to calculate the jobless rate, showed an even stronger gain, with an increase of 436,000 in those who reported holding jobs on the month.
A broader unemployment gauge that includes discouraged workers and those holding part-time jobs for economic reasons, or the underemployed, edged lower to 7.8%. The labor force participation rate ticked higher to 62.6%. The strong report led traders to push out expectations for an interest rate cut until July, according to the CME Group’s FedWatch gauge of futures pricing.

The week ahead — Economic data from Econoday.com: