The Flash Services PMI came in at 53.1 compared to an expected 52.9, which means that the service sector is still in a period of expansion. The Flash Manufacturing PMI was also above 50 coming in at 52 compared to an expected 51.1. In addition, the April report was revised upward to 53.7. While this may be a sign of an unexpectedly resilient economy, it could also be the result of buying done prior to the implementation of Trump’s new tariffs.
On Tuesday and Wednesday, Federal Reserve Chair Jerome Powell gave testimony in front of members of the Senate. Powell urged the need for restraint in the face of pressure from President Trump to cut rates by up to 250 basis points. He believes that evidence of inflation from those tariffs will start to appear in the data by some point in July. Also notably, he mentioned that he was in support of student loan forgiveness but had no opinion on tariffs other than he believed that they were inflationary.
On Thursday, the final GDP figures for the first quarter were made public. During the first three months of the year, the economy contracted by .5 percent compared to an expected contraction of .2 percent. However, it’s expected that the second quarter will show an improvement because of activity conducted in April. Therefore, it’s unlikely that the economy will fall into a technical recession.
Also on Thursday, unemployment claims data for the past week came out. Over the past seven days, there were 236,000 requests for benefits, roughly 10,000 fewer than the prior week. Analysts had expected 244,000 requests for benefits this week prior to the release.
On Friday, the Core PCE Price Index for May came out, and it showed that prices increased by .2 percent in May compared to an expected .1 percent. Personal income was down 0.4 percent for the past month while spending was down 0.1 percent during that same period. This may be a sign that the economy is weakening or that inflation may rise. Either way, it could alter the Fed’s projected path of two or three rate cuts over the second half of 2025.
The S&P 500 broke above 6,100 this week, which is close to both yearly and all-time highs for the index. This is in spite of the fact that the index dipped about 20 percent over a period of three weeks in April. Ultimately, this has been one of the fastest bear market cycles and recoveries in history.
The Dow has also largely recovered from its April slump and is also closing in on yearly and all-time highs. It made a weekly low on Tuesday of 42,070 before reversing and spending the next three days making gains.
In international news, Canada announced on Tuesday that its common CPI was 2.6 percent for the year while inflation overall grew by .6 percent over the past month. On Thursday, Japan announced that its inflation rate was 3.1 percent on an annual basis while retail sales were up 2.2 percent on an annual basis.
The upcoming week is likely to be a muted one given the Independence Day holiday on Friday. However, there are still some major announcements on the schedule including the ADP nonfarm payroll report on Wednesday and the Bureau of Labor Statistics (BLS) nonfarm payroll report coming out on Thursday.