Hogan Lecture at UNH Paul College

During this year’s John A. Hogan Distinguished Lecture at the University of New Hampshire's Paul College of Business and Economics, economist Betsey Stevenson used a powerful comparison to show how far women have come: from 1950s images of women in the kitchen to Taylor Swift commanding billion-dollar stages.

While not everyone can be Taylor Swift, Stevenson emphasized that this shift isn’t just cultural—it’s economic. Technological change, legal reforms, and global trade have redefined women’s roles in both work and family life.

“Economics has a lot to tell us about how that transition happens,” Stevenson said. “Each decision you make creates an interdependency that shapes the constraints for the next decision.”

Stevenson — a professor at the University of Michigan’s Ford School of Public Policy and former U.S. Chief Economist — walked through the factors that transformed household dynamics. Innovations like washing machines and prepared foods reduced the need for skilled domestic labor, while trade made clothing and other goods cheaper, reducing the economic value of traditional homemaking.

At the same time, policy changes — from the Equal Pay Act to Title IX — opened doors for women in education and the workforce. The result is a new model of marriage and family. Women are marrying later, choosing partners based on shared interests rather than economic specialization, and increasingly balancing career and parenting.

“We're getting an increase in the age of first marriage, particularly among those with greater market skills,” Stevenson noted. “It’s more optimal to wait until you know what your adult interests are going to be.”

Stevenson also pointed to recent data showing women now surpass men in education and rebounding in labor force participation after COVID. But she cautioned that more work is needed.

“Today’s families are struggling with policies built for a time when one person handled everything at home,” she said. Stevenson expressed hope that AI and modern workplace tools could offer new flexibility. “I want those AI robots to give you the space to be with your families — not replace you, but support you."

Stagflation: What Is It and Who Is at Risk?

The Federal Reserve opted to leave interest rates unchanged on Wednesday, citing heightened risks of rising inflation and slowing growth, which have prompted renewed warnings about stagflation.

The decision came at the close of the Federal Open Market Committee's meeting. Policymakers held the federal funds rate steady at a target range of 4.25 percent to 4.5 percent, where it has remained since December 2024.

The Fed's latest statement acknowledged increasing uncertainty.

"Uncertainty about the economic outlook has increased further," the FOMC statement said. "The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen."

This is the third consecutive meeting at which the Fed has held rates steady. It comes amid a trade war between the U.S. and China, in part after President Donald Trump implemented new, additional 145 percent tariffs on Chinese goods.

Further, Trump's trade policies have created some opposing pressures, complicating the Fed's moves.

While the FOMC statement did not reference tariffs, Federal Reserve Chairman Jerome Powell, speaking after the decision, said that given the scope of the tariffs, there will be risks of higher inflation and unemployment.

Regardless, Powell said he believes the Fed is prepared for how the tariff situation will play out, CNBC reported.

"There's just so much that we don't know, I think, and we're in a good position to wait and see, is the thing. We don't have to be in a hurry. The economy has been resilient. It's doing fairly well. Our policy is well-positioned," Powell said.

The decision to keep the federal funds rate steady was unanimous. The rate influences borrowing costs across the economy, including mortgages, credit cards, and business loans.

What Is Stagflation?

"Stagflation" is an uncommon but severe economic condition marked by stagnant growth, high inflation, and high unemployment, according to Fidelity Investments. The term merges "stagnation" and "inflation" and describes a scenario where prices rise even as the economy stalls or contracts.

According to Fidelity, stagflation's last major appearance in the U.S. came in the 1970s and early 1980s, driven in part by the oil embargo. In such conditions, the typical policy tools used to cool inflation, such as raising interest rates, can also worsen unemployment and sometimes suppress growth.

Who Is at Risk of Stagflation?

The implications of stagflation are broad, hitting both consumers and businesses. For households, purchasing power diminishes as prices outpace wage growth.

"Unless you're receiving regular raises to counteract inflation, your take-home pay may not be able to cover as much," Fidelity explained. "If unemployment is high, employers aren't likely to lift wages to compete for easy-to-find talent."

For investors, stagnation can drag on stock markets, as economic output slows and earnings decline. Meanwhile, fixed-income investments could be eroded by persistent inflation unless adjusted accordingly.

Businesses, particularly those reliant on imported materials or operating in industries with tight profit margins, may also suffer.

Earlier today, Trump doubled down on his position on China tariffs, saying he will not modify tariffs to initiate negotiations with the country.

As global markets respond to mixed economic signals, the next few months may prove critical in determining whether the U.S. economy can avoid a repeat of stagflation.

Source: Newsweek

Federal Reserve FOMC Meeting

The Federal Reserve on Wednesday held its key interest rate unchanged as it waits for the Trump administration’s trade policy to take shape and sees its impact on a sputtering economy.

In a move that carried little suspense given the wave of uncertainty sweeping the political and economic landscape, the Federal Open Market Committee held its benchmark overnight borrowing rate in a range between 4.25%-4.5%, where it has been since December.

The post-meeting statement noted the volatility and how that is factoring into policy decisions.

“Uncertainty about the economic outlook has increased further,” the statement said. “The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”

While the statement did not specifically address the tariffs, Chair Jerome Powell addressed the issue at his post-meeting news conference.

Stocks briefly ceded some gains after the rate announcement but mostly recovered, with the Dow Jones Industrial Average up nearly 300 points despite some worries over the Fed’s characterization of the economic risks.

“The May FOMC statement in effect warns that a large trade shock is still set to hit the economy in spite of efforts by the Trump administration to deescalate, with the Fed seeing the risks ahead as two-sided and not providing any early dovish lean in favor of a June rate cut,” wrote Krishna Guha, head of global policy and central bank strategy at Evercore ISI. “The net implications for risk assets are negative.”

A possible stagflationary scenario

Finding the balance between the two elements of the Fed’s so-called dual mandate of full employment and stable prices has been made more difficult lately amid President Donald Trump’s tariff push.

In noting that tariffs both threaten to aggravate inflation as well as slow economic growth, the statement raises the possibility of a stagflationary scenario largely absent from the U.S. since the early 1980s.

Policymakers have largely been in agreement that the central bank is in a good position, with the economy generally holding up for now, to be patient as it calibrates monetary policy.

Powell emphasized this during the press conference. “The economy itself is still in solid shape,” he said.

The Fed’s deliberations come as the White House is locked on negotiations with top U.S. trading partners during a 90-day negotiating period that began in early April. Trump slapped 10% across-the-board tariffs on U.S. imports and threatened other individual “reciprocal” duties pending ongoing talks.

As near-daily headline changes gauge the trade war, the economy has been flashing conflicting signals on growth, inflation, and consumer and business sentiment.

Gross domestic product, the broadest measure of economic performance, fell 0.3% in the first quarter, the product of slower consumer and government spending and a surge in imports ahead of the tariffs. Most Wall Street economists expect the economy will return to positive growth in the second quarter.

The FOMC statement noted that “swings in net exports have affected the data,” and held to its recent characterization that the economy “has continued to expand at a solid pace.”

Indeed, job growth has held up despite Trump’s efforts to pare down the federal workforce. Nonfarm payrolls increased by 177,000 in April and the unemployment rate held at 4.2%, giving the Fed room to breathe if it expects a further economic slowdown.

Inflation has been ticking lower and approaching the Fed’s 2% target, but tariffs are expected to result in at least a one-time rise in prices. Trump has pushed the Fed to cut rates as inflation has eased. The central bank’s preferred gauge showed headline inflation at 2.3%, or 2.6% on core that excludes food and energy.

However, as with all aspects of the economy, it all depends on what happens with tariffs.

Trade talks in focus

Recent indications of progress in negotiations along with some softening from the administration have helped reverse a huge stock market sell-off after the April 2 “liberation day” announcement from Trump. However, business surveys show a high degree of anxiety, with most managers reporting concerns about supplies and pricing from the tariffs.

Market pricing regarding Fed action has been volatile as well.

Heading into the meeting, pricing indicated virtually no chance of a cut this week and less than 30% probability of a move in June, with the next reduction expected in July. Traders are pricing in a total of three cuts this year, though that could change following Wednesday’s decision.

The committee’s decision to hold the benchmark rate steady was unanimous. The fed funds rate is used by banks for overnight lending but also feeds into other consumer debt such as mortgages, auto loans and credit cards.

Source: Jeff Cox, CNBC

Nonfarm Payrolls

The U.S. labor market held up surprisingly well in April, as employers continued to hire at a healthy pace even when faced with dramatically higher tariffs. Nonfarm payrolls grew by 177K in the U.S. in April, topping the +130K consensus, but moderated slightly from the 185K added in March, according to data released by the U.S. Bureau of Labor Statistics on Friday.

The previous month's number, though, was revised down from +228K in its initial print. The BLS also revised February's print down by 15K to +102K, meaning that for the first two months of the year, there were 58K fewer jobs than previously reported.

The unemployment rate remained at 4.2%, as expected.

"The 177,000 increase in jobs and unemployment rate unchanged at 4.2% will strengthen the Federal Reserve’s no-action plan. It will likely hold rates, compared to earlier forecasts for a 25 bps cut at its May 6-7 meeting," said Chris Lau, Investing Group Leader for DIY Value Investing.

The labor participation force rate ticked up to 62.6% from 62.5%.

Health care, transportation and warehousing, financial activities, and social assistance continued to see increases in hiring, while federal government employment fell, the U.S. BLS said.

"The job increases in health care, transportation and warehousing, financial activities," Lau said. "DOGE activities led to a drop in federal government jobs. The government cut 9,000 jobs last month and 26,000 since January. The auto parts market lost 4,700 jobs. Although the government will lessen tariffs, be wary of industries with such headwinds. Investors should avoid firms like Magna (MGA), Advance Auto Parts (AAP), and Aptiv (APTV)."

Average hourly earnings rose 0.2% M/M in April, less than the +0.3% consensus, and slowing from the 0.3% increase in March. Y/Y, average hourly earnings increased 3.8%, less than +3.9% expected and +3.8% prior.

"Taken at face value, the April employment data displayed remarkable stability, leaving aside the question of the sustainability of that feature," said Mark Hamrick, senior economic analyst at Bankrate.

Equities reacted positively, with Nasdaq futures, S&P futures, and Dow futures each pulling up 0.9%. Bonds fell. The 10-year Treasury yield rose 6 basis points to 4.28%.

"While many will dismiss this report as 'the past,' these numbers suggest US economic resilience going into an uncertain period," said economist Mohamed A. El-Erian in a post on X. "With favorable supply and demand signals from the jobs report, it becomes virtually a certainty that the Federal Reserve will not cut interest rates next week."

Fitch Ratings' head of economic research, Olu Sonola, warns that economic uncertainty hasn't diminished. "For now, we should curb our enthusiasm going forward given the backdrop of trade policies that will likely be a drag on the economy," he said. "The key message coming from the totality of the data this week is that the U.S. economy was fundamentally strong through the first week of April, however, the outlook remains very uncertain."

Source: Liz Kiesche, Seeking Alpha

URC at UNH

The Undergraduate Research Conference (URC) is a celebration of academic excellence at the University of New Hampshire. In 2025, the URC celebrated its 26th year during a series of events, running from April 21 to 26. More than 1,700 UNH undergraduate students, from all academic disciplines, presented at the URC. The presentations showcased the results of students' research, scholarly, and creative projects in over 20 professional and artistic venues at both campuses (Durham and Manchester), making the UNH URC one of the largest and most diverse conferences of its kind in the country.

The URC session in the Peter T. Paul College of Business and Economics was held on Friday, April 25. Below is a list of the of the research projects conducted by ECON B.S. capstone students:

MJ Condon, Victoria Drake, Joseph Skehan

Gross National Happiness and the Economy

 

Reece Apgar, Sam Croteau, Aiden Giarnese, Logan Patrick

The New England Energy Market

 

Jaelin Cummings, Taya Morgado, Ryan O'Malley 

Rising Income Inequality in the U.S.

 

Key Factors Affecting the Import Ratio

Drew Dickson, Brennan Dwyer, Spencer Quillen, Nick Weatherbie

 

Mather Kipka, Merlim Llanes Cardenas, Sofia Menyalkin, Kyle Santangelo

Factors Affecting the Homeownership Rates

 

Kara Cataldo, John Ecklund, Ria Talwar

The Economic Impact of Climate Change

 

Sean Bradley, Charles Craig, Kyle Heidt

Analyzing Consumer Spending in the Live Entertainment Industry

 

Drew Bircher, Kyle Burditt, Ryan Luis

Stock Market Effect on Consumption

 

Aidan Dormady, Maximus Guth, Jamie Keep, Paul Sullivan 

Factors That Impact the U.S. Housing Market

 

Jason Lee, Stephen Mague, Colby Walsh

Retirement and Labor Force Participation

Recession ?

The U.S. economy shrank at a 0.3% annual pace from January through March, the first drop in three years, as President Donald Trump’s trade wars disrupted business. First-quarter growth was slowed by a surge in imports as companies in the United States tried to bring in foreign goods before Trump imposed massive tariffs.

The January-March drop in gross domestic product — the nation’s output of goods and services — reversed a 2.4% gain in the last three months of 2024. Imports grew at a 41% pace, fastest since 2020, and shaved 5 percentage points off first-quarter growth. Consumer spending also slowed sharply — to 1.8% growth from 4% in October-December last year. Federal government spending plunged 5.1% in the first quarter.

Forecasters surveyed by the data firm FactSet had, on average, expected the economy to eke out 0.8% growth in the first quarter, but many expected GDP to fall.

Financial markets sank on the report. The Dow Jones tumbled 400 points at the opening bell shortly after the GDP numbers were released. The S&P 500 dropped 1.5% and the Nasdaq composite fell 2%.

The surge in imports — fastest since 1972 outside COVID-19 economic disruptions — is likely to reverse in the second quarter, removing a weight on GDP. For that reason, Paul Ashworth of Capital Economics forecasts that April-June growth will rebound to a 2% gain.

Trade deficits reduce GDP. But that’s mainly a matter of mathematics. GDP is supposed to count only what’s produced domestically. So imports — which the government counts as consumer spending in the GDP report when you buy, say, Swiss chocolates — have to be subtracted out to keep them from artificially inflating domestic production.

And other aspects of Wednesday’s GDP report suggested that the economy looked solid at the start of the year.

A category within the GDP data that measures the economy’s underlying strength rose at a healthy 3% annual rate from January through March, up from 2.9% in the fourth quarter of 2024. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.

Still, many economists say that Trump’s massive import taxes — the erratic way he’s rolled them out — will hurt growth in the second half of the year and that recession risks are rising.

“We think the downturn of the economy will get worse in the second half of this year,’' wrote Carl Weinberg, chief economist at High Frequency Economics. “Corrosive uncertainty and higher taxes — tariffs are a tax on imports — will drag GDP growth back into the red by the end of this year.’'

Wednesday’s report also showed an increase in prices that is likely to worry the Federal Reserve which is still trying to cool inflation after a severe pandemic run-up. The Fed’s favored inflation gauge – the personal consumption expenditures, or PCE, price index – rose at an annual rate of 3.6%, up from 2.4% in the fourth quarter. Excluding volatile food and energy prices, so-called core PC inflation registered 3.5%, compared with 2.6% from October-December. The central bank wants to see inflation at 2%.

The first-quarter GDP numbers “highlight the bind that the Federal Reserve is in,” Ryan Sweet of Oxford Economics wrote in a commentary. The Fed must weigh whether to cut interest rates to support economic growth or leave rates high because of elevated inflation. “The economy was essentially stagnant in the first three months of the year while growth in headline and core inflation accelerated, fanning concerns of stagflation.’’

Trump inherited a solid economy that had grown steadily despite high interest rates imposed by the Fed in 2022 and 2023 to fight inflation. His erratic trade policies — including 145% tariffs on China — have paralyzed businesses and threatened to raise prices and hurt consumers.

Democrats were quick to blame Trump for disrupting several years of solid economic growth. Democratic Sen. Elizabeth Warren of Massachusetts said: “100 days into his presidency, Donald Trump’s red-light, green-light tariffs are shrinking our economy, with businesses stockpiling imports in anticipation of tariff doomsday.″

There is potential evidence emerging that the solid job market, a pillar of the U.S. economy during the pandemic recession, may be weakening.

On Wednesday, payroll provider ADP reported that companies added just 62,000 jobs in April, about half of what was expected, and down from 147,000 in March. That could be a signal that businesses may be taking a more cautious approach to hiring amid uncertainty over tariffs. Still, the ADP figures often diverge from the government’s jobs reports, which arrive Friday.

Employers in the education and health, information technology, and business and professional services industries all cut jobs. Business and professional services include sectors such as engineering, accounting and advertising.

“Unease is the word of the day,” said Nela Richardson, chief economist at ADP. “It can be difficult to make hiring decisions in such an environment.”

Source: Christopher Rugaber, The Associated Press

Consumer Confidence

Consumer attitudes about both the present and near future dimmed again in April, as tariffs dented sentiment and confidence in employment hit levels last seen around the global financial crisis.

The Conference Board’s Consumer Confidence Index fell to 86 on the month, down 7.9 points from its prior reading and below the Dow Jones estimate for 87.7. It was the lowest reading in nearly five years.

However, the view of conditions further out deteriorated even more.

The board’s expectations index, which measures how respondents look at the next six months, tumbled to 54.4, a decline of 12.5 points and the lowest reading since October 2011. Board officials said the reading is consistent with a recession.

“The three expectation components—business conditions, employment prospects, and future income—all deteriorated sharply, reflecting pervasive pessimism about the future,” said Stephanie Guichard, the board’s senior economist for global indicator.

Guichard added that the confidence surveys overall were at “levels not seen since the onset of the Covid pandemic.”

Indeed, the level of respondents expecting employment to fall over the next six months hit 32.1%, “nearly as high as in April 2009, in the middle of the Great Recession,” Guichard added. That contraction lasted from December 2007 until June 2009. The level of respondents seeing jobs as “hard to get” rose to 16.6%, up half a percentage point from March, while those seeing jobs as “plentiful” fell to 31.7%, down from 33.6%.

Future income prospects also turned negative for the first time in five years.

The downbeat views extended to the stock market, with 48.5% expecting lower prices in the next 12 months, the worst reading since October 2011. Inflation expectations also surged, at 7% for the next year, the highest since November 2022.

Driving the pessimism was fear over tariffs, which reached an all-time high for the survey. Recession expectations hit a two-year high as well.

Source: Jeff Cox, CNBC

Durable Goods Orders

          

Orders placed with US factories for business equipment barely rose in March, suggesting firms are growing cautious amid uncertainty surrounding tariffs and tax policy.

The value of core capital goods orders, a proxy for investment in equipment excluding aircraft and military hardware, increased 0.1% last month after a revised 0.3% decline in February, Commerce Department figures showed Thursday. Shipments of core capital goods rose at a slower pace.

Bookings for all durable goods — items meant to last at least three years  — surged 9.2%, the most since July on a 139% jump in orders for commercial aircraft.

The moderation in capital goods orders suggests companies were growing cautious about investing in their operations ahead of President Donald Trump’s early-April announcement of sweeping tariffs. A fluid trade-policy is fueling uncertainty elevated, leaving businesses’ capital spending plans in limbo while also raising concerns about the economic outlook.

In the meantime, while business leaders and investors wait for the administration to wrap up negotiations on a number of bilateral trade deals, lawmakers on Capitol Hill are still working on tax-cut legislation.

Metric                                                                       Actual        Estimate

Durable goods orders                                           +9.2%      +2.0%

Capital goods orders excl. defense & aircraft           +0.1%      +0.1%

Capital goods shipments, excl. defense & aircraft   +0.3%      +0.2%

Rather than orders that can be canceled, the government uses data on shipments as an input to gross domestic product, which reflects when a payment has been made. Core capital goods shipments rose 0.3% after a revised 0.7% gain.

Economists like to look at the core shipments figure for a cleaner sign of underlying sales since there are extremely long times between ordering commercial aircraft and military equipment and the actual shipment taking place.

Non-defense capital goods shipments including aircraft, which feed directly into the equipment investment portion of the gross domestic product report, dropped 1.9%, the most since October. The latest figure, dragged down by commercial aircraft, suggests a weak finish to the first quarter ahead of the government’s initial estimate of GDP next week.

After the durables report, the Federal Reserve Bank of Atlanta’s GDPNow forecast penciled in a 0.74 percentage point contribution from business equipment spending for the quarter, which would be the most in three years.

The Commerce Department’s report showed the increase in bookings for commercial aircraft, which are volatile from month to month, was the largest since July.

Boeing Co. said it received 192 orders in March, the most since the end of 2023 and up from 13 in the previous month. At the same time, China recently ordered its airlines not to take further deliveries of Boeing jets as the trade war escalates. 

Manufacturing surveys suggest tougher sledding ahead. S&P Global’s flash April factory index hovered near stagnation for a second month. A gauge of Philadelphia-area manufacturing tumbled nearly 39 points this month and showed the steepest contraction in two years.

Source: Mark Niquette, MSN

US Economic Outlook - April 2025

Changes in US trade policy are having a profound impact on the global economy and financial markets. The US administration’s on-off tariff policy has led to a confidence crisis with businesses favoring a wait-and-see approach in the face of historically elevated policy uncertainty. US consumer sentiment gauges have plunged to their lowest levels since the 1980s while forward-looking business confidence measures are at multiyear lows. And while this malaise has yet to precipitate a retrenchment in consumer spending and business investment — tariff front-running even lifted March spending — heightened financial market volatility and diminished appetite for dollar-denominated assets pose significant risks to the US economic outlook.

Factoring these developments, we have made notable adjustments to our baseline outlook. The US average tariff rate has risen by about 22 percentage points (ppt) to 24% as of April 20. We assume exemptions along with a reduction of tariffs on China will bring the average tariff rate closer to 17% through most of Q2 and Q3. From Q4 onward, we anticipate trade deals will bring the average tariff rate down to 13% — representing a 10ppt increase relative to 2024. We maintain our expectations regarding an extension of most expiring tax cuts paid for by modest spending cuts. We also maintain our lower net immigration estimates at 800,000 per year over the next four years.

We have cut our real GDP growth forecast to 1.1% for 2025 and 2026, from 1.7% and 1.6%, respectively, in our prior baseline. Importantly, the anticipated real GDP growth will approach stall speed in Q4 with growth at only 0.2% year over year (y/y). While we see the odds of a recession in the next 12 months around 45%, risks to the outlook are tilted to the downside.

Pressures on labor demand and supply: The strong 228,000 payroll gain in March is a reminder that economic fundamentals were robust heading into the tariff storm. Yet, downside risks to the labor market have escalated significantly in recent weeks. The unemployment rate stood at a still historically low 4.2% in March, but it’s poised to rise toward 5% as economic activity slows and business leaders look to manage labor costs amid elevated imported input cost. We foresee job growth decelerating from 160,000 per month in 2024 to around 50,000 in 2025 and believe the decline in net immigration flows will constrain labor supply dynamics.  

Worried consumers front-run tariffs: Faced with extreme uncertainty, consumers rushed to buy durable goods in March to avoid price hikes from steep tariff increases. Indeed, the biggest jump in car purchases in over two years and robust spending on building materials, sporting goods and electronics point to some pulling forward of purchases. With the economy set to cool sharply in the coming month, price-sensitive consumers are poised to become more judicious with their spending and reduce non-essential purchases. We foresee real consumer spending growth of 1.7% in 2025, following a 2.8% advance in 2024. The average will mask a more pronounced moderation in spending trends, with consumption momentum likely to ease from 3.1% y/y in Q4 2024 toward 0.3% y/y in Q4 2025.

Inflation about to take a turn for the worse: The March Consumer Price Index (CPI) report offered a heartening albeit stale picture of inflation dynamics — before steep increases in tariffs were enacted. Headline inflation slipped to its lowest level since February 2021 — within striking distance of the Fed’s 2% target — while core inflation broke below the 3% mark for the first time since March 2021. Looking ahead though, higher tariffs will lead to a renewed inflation impulse in coming quarters, with core CPI inflation likely to end 2025 in the 3.5% to 4% range.

Hawkish caution from the Fed: The Fed remains highly reactive, leaning heavily on incoming data. This high degree of data dependence supports the case for holding rates steady through midyear with Fed Chair Jerome Powell confirming that monetary policy is well positioned to wait for more policy outlook clarity. This cautious stance has served the Fed well amid the recent turbulence in trade policy. Going forward, however, we foresee potential fissures among Fed officials as some favor addressing upside risks to inflation and others support accommodating downside risk to growth. We believe the Fed will eventually decide to ease policy in June with a total of three rate cuts in the second half of the year. Pressure from the administration to ease policy faster will continue to make headlines as the risk of an attempt to dismiss Powell grows — a major risk for stocks, bonds and the US dollar.

Source: Gregory Daco, EY-Parthenon Chief Economist, Ernst & Young

Chicago Purchasing Manager's Index

The latest Chicago Purchasing Manager's Index (Chicago Business Barometer) fell to 35.4 in May from 37.9 in April. This is the sixth straight monthly decline and the lowest level for the index since May 2020. The latest reading is worse than the 41.1 forecast and keeps the index in contraction territory for a sixth consecutive month.

The Chicago PMI assess the business conditions and the economic health of the manufacturing sector in the Chicago region. A value above 50.0 indicate expanding manufacturing activity, while a value below 50.0 indicate contracting manufacturing activity.

Let's take a look at the Chicago PMI since it began. The current level of 35.4 is below the level the index was at for the start of 6 of the 7 recessions that have occurred since its inception.

Here's a closer look at the indicator since 2000.

Source: Jennifer Nash, Advisor Perspectives

Personal Consumption Expenditures

The personal consumption expenditures, or PCE, price index rose 0.3% in April, in line with estimates. The 12-month headline inflation rate held at 2.7%, as expected.

Typically, Federal Reserve decision-making puts more weight on core inflation, which strips out volatile food and energy prices. The core PCE price index rose 0.2% in April, matching forecasts and the smallest increase so far this year.

The 12-month core inflation rate held at 2.8%, as expected.

On an unrounded basis, the core PCE price index rose 0.249%. At first blush, that's not as benign as the 0.2% reading. However, the big picture looks better. Thanks partly to downward revisions to first-quarter inflation data, the Fed's primary core inflation rate registered 2.75% over the past 12 months, which rounded up to 2.8%.

Core inflation hasn't been this low since March 2021.

Supercore Services Inflation

Still, the April inflation data showed that more progress is needed to bring down what Wall Street now calls supercore inflation. This metric unveiled by Federal Reserve chair Jerome Powell in late 2022 measures changes in core service prices excluding housing. This narrower view of price changes was in keeping with the Fed's worry that the tight labor market and elevated wage growth had been at the root of stubbornly high inflation. Wages make up a high percentage of costs for service businesses. Therefore, supercore services inflation should ease as wage pressures moderate.

In April, prices for these core nonhousing services, including health care, haircuts and hospitality, rose 0.265% on the month, after a 0.4% increase in February. 

The 12-month supercore services inflation rate dipped to 3.4% from 3.5% in March, but though it is up from 3.3% at the end of 2023.

Personal Income, Spending

The PCE price index is released with the Commerce Department's monthly personal income and outlays report. Personal income rose 0.3%, matching forecasts. Personal consumption expenditures rose 0.2% in April, below 0.3% estimates. That followed back-to-back gains of 0.7%.

Adjusted for inflation, consumer outlays dipped 0.1% in April. That could lead economists to lower Q2 GDP growth estimates, after tepid 1.3% growth in Q1.

Federal Reserve Rate-Cut Outlook

After April's core PCE inflation data, market pricing showed 50.5% odds that the first Fed rate cut will come by the Sept. 18 policy meeting, up slightly from 49% ahead of the report.

Markets now see 58% odds of no more than one quarter-point rate cut for the full year, down slightly from 60%. That includes a 17% chance that the Fed will leave rates steady.

Source: Jed Graham, Investor's Business Daily

GDP Growth

The economy expanded at a 1.3% seasonally adjusted annual rate in the first quarter of this year, the Bureau of Economic Analysis reported Thursday in a downward revision.

Economists had expected a slight downward revision in the second update, with the consensus forecast expecting GDP growth to be pruned to 1.2%. First-quarter GDP has fallen three-tenths of a percentage point since the preliminary report.

The latest update, the second of three, shows that first-quarter GDP growth was lower than the preceding quarter’s 3.4% clip.

The Bureau of Economic Analysis updates its GDP estimates over the course of several weeks as analysts get a better picture of how the economy performed during the first quarter.

The first quarter’s GDP reading is also a decline from all of 2023, which saw the economy expanded a healthy 2.5%.

The weaker growth in the first quarter was attributable in part to slower consumer spending. That could be a response to the Federal Reserve’s efforts to curb inflation by keeping interest rates higher for longer.

For months, economists have been expected GDP to slow down after the Fed raised its interest rate target to 5.25% to 5.50% in response to too-high inflation. Higher rates typically cause economic output to dampen.

But the previous few quarters of robust GDP numbers have given the Fed some ammunition to keep rates higher for longer, as has the underlying strength in the labor market.

The positive GDP growth has provided a talking point for President Joe Biden in his reelection bid.

The weaker growth in the first quarter was attributable in part to slower consumer spending. That could be a response to the Federal Reserve’s efforts to curb inflation by keeping interest rates higher for longer.

For months, economists have been expected GDP to slow down after the Fed raised its interest rate target to 5.25% to 5.50% in response to too-high inflation. Higher rates typically cause economic output to dampen.

But the previous few quarters of robust GDP numbers have given the Fed some ammunition to keep rates higher for longer, as has the underlying strength in the labor market.

The positive GDP growth has provided a talking point for President Joe Biden in his reelection bid.

Source: Zachary Halaschak, Washington Examiner

Consumer Confidence

U.S. consumer confidence unexpectedly improved in May after deteriorating for three straight months amid optimism about the labor market, but worries about inflation persisted and many households expected higher interest rates over the next year.

The mixed survey from the Conference Board on Tuesday also showed more consumers believed that the economy could slip into recession in the next 12 months. Nonetheless, consumers were very upbeat about the stock market and more planned to buy major household appliances over the next six months.

While the economy is expected to slow this year as a result of the cumulative impact of 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022 to tame inflation, economists and most business executives are not forecasting a downturn.

"Continued positive job growth, rising wages, an ebullient stock market and healthy household balance sheets will keep consumers spending despite elevated prices and borrowing costs," said Oren Klachkin, financial market economist at Nationwide.

The Conference Board said that its consumer confidence index increased to 102.0 this month from an upwardly revised 97.5 in April. Economists polled by Reuters had forecast the index slipping to 95.9 from the previously reported 97.0. It outperformed the University of Michigan's sentiment index.

Confidence remains within the relatively narrow range it has been hovering in for more than two years.

The improvement was across all age groups, with consumers making annual incomes over $100,000 posting the largest increase in confidence. On a six-month moving average basis, confidence remained highest among the under-35 age cohort and those with annual incomes of more than $100,000.

Consumers' perceptions of the labor market also improved, with the survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, widening to 24 from 22.9 in April, though opportunities are probably not as abundant as in the past year.

"The level of this measure remains elevated by historical standards and points to a still strong labor market," said Michael Hanson, an economist at JPMorgan.

The measure closely correlates to the unemployment rate in the Labor Department's employment report. Labor market resilience, mostly characterized by historically low layoffs, is underpinning the economic expansion. Consumers' 12-month inflation expectations rose to 5.4% from 5.3% in April.

"Consumers cited prices, especially for food and groceries, as having the greatest impact on their view of the U.S. economy," said Dana Peterson, chief economist at the Conference Board. "Perhaps as a consequence, the share of consumers expecting higher interest rates over the year ahead also rose, from 55.2% to 56.2%."

About 48.2% of consumers in the survey expect stock prices to increase over the coming year, compared to 25.4% anticipating a decrease.

Stocks on Wall Street were trading higher, with the technology-heavy Nasdaq index (.IXIC), opens new tab breaching the 17,000 level for the first time. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.

HOUSE PRICE GAINS SLOW

Consumers' inflation and interest rate views were likely colored by a surge in price pressures in the first quarter. That, together with still-solid economic growth, has prompted financial markets to push back expectations for the first rate cut from the U.S. central bank to September from June. The Fed has kept its policy rate in the 5.25%-5.50% range since July.

Consumers' perceived likelihood of a recession over the next year rose for the second consecutive month. Despite concerns about higher prices and an economic downturn, consumers are not planning to cut back on spending in a significant way.

The survey's measure of buying plans for major appliances over the next six months rose to 49.4 from 43.0 in April, driven by television sets, refrigerators, vacuum cleaners and clothes dryers.

Buying plans for motor vehicles were unchanged while those for houses dropped amid higher mortgage rates and elevated home prices. On a six-month moving average basis, purchasing plans for homes were unchanged in May at their lowest level since August 2012.

A separate report from the Federal Housing Finance Agency on Tuesday showed house prices increased 6.7% in March on a year-on-year basis after advancing 7.1% in February.

Prices are being driven by a shortage of homes available for sale, and housing costs have been the major driver of inflation.

Though supply is gradually improving, it remains well below pre-pandemic levels.

"We expect home price growth to remain positive in the quarters ahead, with risks skewed to the upside," said Bernard Yaros, lead U.S. economist at Oxford Economics.

"Scarce supply in the resale market, a sturdy labor market, and pent-up demand from Millennials aging into their prime household-formation years argue for potentially firmer house price gains than in our baseline forecast."

Source: Lucia Mutikani, Reuters

United States Economy at a Glance

Hey, America, we totally understand if you're not feeling so great about the economy.

But if you think we're in a recession, here's some good news: We're not in one, and there likely isn't one coming, based on economic data and what experts who talked to Business Insider are seeing.

A Harris poll for the Guardian found 56% of Americans believe the US is in a recession. Plus, it found a majority think we have a shrinking economy. Two reasons people may be feeling like the economy isn't doing so well — despite the US not being in an official recession since the two-month one in early 2020 — are due to media coverage and how people view economic trends.

David Kelly, chief global strategist at J.P. Morgan Asset Management; Eugenio Alemán, Raymond James' chief economist; and Gregory Daco, EY's chief economist, told Business Insider the US isn't in a recession.

"Americans' negative attitude towards the economy is largely due to incessantly negative media coverage of economic and social issues amplified by an even more negative social media feed," Kelly told Business Insider in a statement.

Of course, not everything is perfect, and that could sour people's views. Daco said that when you consider cost fatigue, inflation's cumulative effect, the largely frozen and unaffordable housing market, and also "the reduced amount of churn in the labor market and this perception that there are fewer opportunities out there in terms of jobs, then that leads to more pessimism about the implied state of the economy."

"And I think that's really what we're seeing in terms of this particular survey — is that there is this difference between how people perceive consumer spending trends, inflationary trends, employment trends, and how they are from a data perspective," Daco said, adding "that misperception is exacerbated by the fact that we have different sources of intelligence, different media sources that may bias the underlying take as to how the economy is behaving."

If you're interested in learning more about what's going on with the economy take a look at the charts below.

US GDP is still growing

Kelly listed "growth and expected growth in quarterly GDP" as one of the "most important numbers to watch" in addition to payroll gains — which recently cooled but are still signaling a strong labor market — and the weekly unemployment insurance claims — which have been low as large-scale layoffs have not yet emerged.

Real GDP for the US has continued to be robust, even if growth has been slowing.

Unemployment rates in the US have been low

The unemployment rate did climb from 3.8% in March to 3.9% in April, but that's still low.

"We're still seeing strong job growth momentum," Daco said. "We have a historically low unemployment rate."

In the Great Recession, the US unemployment rate skyrocketed from 5.0% in December 2007 to 9.5% in June 2009. It took years for the job market to fully recover after that recession, while unemployment plummeted after the brief but deep Covid recession in 2020.

CPI data shows US inflation is stubborn but has been under 4%

Inflation is still elevated and stubborn, but the year-over-year change in the Consumer Price Index has cooled from the high 2021 and 2022 rates. Alemán said while inflation is comparatively low, "the surge in inflation since 2021 has pushed Americans to try to figure out what to buy and what not to buy — something that we were not used to doing before."

"Probably the cost of searching for a better price has put a lot of stress into Americans' lives that they did not have before," Alemán said.

The S&P 500 has generally been rising for over a year

In 2024, the S&P 500 hit multiple all-time highs. The Harris poll for the Guardian found nearly half thought the S&P 500 index had actually been down.

There isn't a US recession now or one coming soon either

If you're worried about a recession coming soon, you may feel better knowing that experts don't think so. Alemán said Raymond James doesn't foresee one but expects a slowdown in economic activity. Looking at the next 12 months, Daco said recession odds are relatively low. Kelly said the US isn't "even close" to a recession.

"Indeed, the so-called 'misery index', the sum of the inflation rate and the unemployment rate is currently 7.3%," Kelly said. "This is better, that is lower, than it has been more than 75% of the time over the past 60 years."

There are still some data points and trends Americans may be concerned about. Sales for existing homes and new homes dropped recently. While mortgage rates are back below 7%, they're still elevated. Layoffs are happening at some major companies, inflation is still not back to the Fed's 2% target, and it looks like interest rates are still going to be high for a while.

"The longer we have very, very high interest rates as we have today, that will increase the probability that something will break and that we might face a recession in the future," Alemán said.

So hooray for no recession and likely no recession anytime soon. However, just because we aren't in a recession doesn't mean the economy is perfect.

Source: Madison Hoff, Business Insider

Inflation

Federal Reserve policymakers waiting to see renewed progress on inflation before reducing borrowing costs got some encouraging data on Wednesday with a government report showing inflation eased a bit in April. The 3.4% rise in the consumer price index from a year earlier, and the 0.3% increase from March, shows the Fed still has some distance to go before it achieves its 2% target for inflation.

But the report broke a three-month streak of hotter-than-expected readings that had sapped Fed policymaker confidence in a narrative of steadily easing price pressures. An increasing number of them had warned in recent weeks that rates would need to stay high for longer.

Particularly heartening in Wednesday's report, analysts said, was a slight easing in shelter inflation that policymakers have long expected but had been disappointingly slow to show up in the data. Rent prices rose 0.35% from a month earlier, their slowest pace since 2021, the report showed.

Core CPI, which strips out energy and food prices and is seen as a better gauge of underlying price pressures, rose 3.6%, its slowest in three years.

Analysts crunching the numbers said the CPI data suggests the Fed's preferred inflation gauge, the personal consumption expenditures price index, likely also eased in April.

JP Morgan chief economist Michael Feroli estimated the core PCE gained 2.7% last month from a year earlier, down from 2.8% in March.

The inflation readings are "firmer than the Fed’s inflation goals, but at least are moving in the right direction again after the backsliding seen over the prior few months," Feroli wrote. 

A separate government report showed previously fast-rising retail sales were unchanged in April compared to March.

After the data traders firmed up bets on Fed rate cuts in both September and December, with rate-futures contracts pricing pointing to a year-end policy rate of 4.75%-5%, down from the current range of 5.25%-5.5%.

An early start to rate cuts remained a long shot, based on rate-futures contracts, with pricing reflecting only slightly more than a one-in-four chance of a July rate cut.

Fed Chair Jerome Powell on Tuesday signaled the Fed may need to defer rate cuts until farther into the year to ensure inflation is headed back down to the Fed's 2% goal, but also said he thinks a rate hike at this point is unlikely.

"If there were concerns that they weren't going to cut at all, this just alleviated some of those concerns," said Jason Price, chief of investment strategy and research at Glenmede. "What it doesn't do is put the Fed on a trajectory to begin cutting immediately. They're going to need a couple more reports to get some confidence."

Source: Reuters, Ann Saphir, Ankika Biswas, and Howard Schneider

Stagflation in the U.S. Economy?

Stagflation in the U.S. economy could be a likely scenario in the coming quarters. Investors should be careful because stagflation is the worst of both worlds and makes investing very difficult.

Before going into any details, what is stagflation? In simple terms, it’s when there’s slow economic growth, higher unemployment, and persistent inflation at the same time.

Here’s some perspective on why the case for stagflation in the U.S. economy is getting stronger.

The U.S. economy is starting to crack. The vast majority of U.S. gross domestic product (GDP) is based on consumption, and it’s starting to look like consumption could be getting hurt. If U.S. consumption goes down, so will the U.S. economy.

U.S. consumers are starting show signs of financial stress. Take a look at the chart below; it plots the U.S. delinquency rate for credit card loans at all commercial banks.

In the first quarter of 2022, the delinquency rate for credit card loans was around 1.67%. At the end of the fourth quarter of 2023, the rate was 3.1%, which was more than a decade high. Worth noting is that the credit card delinquency rate rose to more than a decade high in just a few quarters.

If this trend continues, will consumers go out and spend? It’s unlikely.

Delinquency Rate on Credit Card Loans, All Commercial Banks

But that isn’t all.

Recently in the U.S., the housing market has been slowing, the rate of construction growth has also been slowing, retail sales have been stagnating, the personal saving rate has been dismal, and the list goes on.

Job Cuts Growing & Hiring Isn’t

Now, what’s been happening on the employment front? It’s not looking good.

Take a look at the April 2024 “Challenger Report,” which is issued by Challenger, Gray & Christmas, Inc., a global outplacement and business and executive coaching firm. The company’s monthly report tracks the number of job cuts announced by U.S.-based firms.

Year-to-date (as of the end of April), U.S. companies announced 322,043 job cuts. Moreover, the amount of time it takes to find a job in the U.S. has been increasing. The average job search lasted 3.05 months in the first quarter 2024. That’s compared to 2.71 months in the first quarter of 2023. 

Hiring numbers haven’t been looking good, either. In the first four months of 2024, U.S. employers announced plans to hire 46,597 workers. This is a lower total for the first four months of a year since 2016!

U.S. Inflation Has Been Sticky

Lastly, when it comes to inflation, it’s been sticky.

Certainly, the rate of inflation in the U.S. economy has come down lately, but it remains above the range that the Federal Reserve has been targeting: between two and three percent.

In the first three months of 2024, the Consumer Price Index (CPI)—an official measure of inflation at the consumer level—increased by 1.1%. 

Assuming this pace continues, the annual rate of inflation in the U.S. for 2024 could end up being well over four percent!

What to Do if Stagflation Takes Control

Dear reader, as I said earlier, the case for stagflation in the U.S. continues to get stronger.

In a recent press conference, the Fed’s chairman, Jerome Powell, hinted that he doesn’t see any stagflation. But don’t take those words too seriously. We could very well be in the early stages of stagflation, just not full-blown stagflation. The Fed will eventually come to terms with it and call it what it is.

Note that the Fed was very wrong about how long higher-than-normal inflation would stick around.

For investors, stagflation is the worst of both worlds: a slowing economy at the same time as higher inflation.

In times of stagflation, being defensive can pay, versus being aggressive. Growth stocks and consumer discretionary plays could get hurt badly. Meanwhile, gold, utilities, and consumer staples could outperform the overall market.

Source: Lombardi Letter, Moe Zulfiqar