Consumer confidence rebounds, yields decline
Summary
There was plenty to digest this past week with the trend of mixed economic signals continuing. Consumer confidence jumped as the data is now starting to capture the May 12 announcement of a pause on some tariffs with China. Overall, markets reacted favorably on the week, with the S&P 500 returning +1.9%, and the yield on the 10-year U.S. Treasury drifting down to 4.41%.
PCE
The personal income and outlays report was released Friday reflecting positive takeaways. Personal income beat expectations with a 0.8% increase month-over-month, while expenditures were in line with expectations at a 0.2% increase month-over-month. The PCE price index and Core PCE price index also met expectations at 2.1% and 2.5%, respectively. Given that the Core PCE price index is now trending much closer to the Federal Reserve’s 2% target, and the potential inflation from tariffs has not shown up yet, it will be interesting to see the path rates take for the remainder of the year. President Trump made his opinion clear when he told Chair Powell he believed he was making a mistake by not lowering rates after summoning him to the White House last Thursday.
Other key news and releases
Durable goods kicked off the week and, although the headline number declined less than expected, (-6.3%), Ex-Transportation slightly beat expectations at 0.2%. Consumer confidence saw a 12-point increase with a reading of 98, rebounding from the prior reading and solidly beating expectations. The FOMC meeting minutes showed that most governors were worried about the impact of tariffs on inflation. Revised GDP increased slightly to -0.2%, although the revision to consumer expenditures from 1.8% to 1.2% was larger than expected. Jobless claims ticked up to 240,000, a number to watch closely as it is a good early indicator for what to expect in the economy. Pending home sales decreased -6.3% on the month, a much sharper decline than expected and is consistent with a struggling housing market. The week ended with a good PCE report, an uptick in revised consumer sentiment, and a trade report that showed a deficit that was cut in half from last month. However, the trade report should be viewed cautiously given the volatility we have seen because of tariffs. The Dallas, Richmond, and Chicago PMIs were also released, and all continued to struggle.
The week ahead
ISM manufacturing and services releases, JOLTS, and the jobs report will be in focus this week.
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