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Citi's Most Read – Economics Summary (June 2 - June 8, 2025)

Core Content Overview

This summary outlines the key economic insights and analysis from Citi Research for the week of June 2 to June 8, 2025, focusing on the US and European economies, as well as the China travel economy. The reports highlight the current state of labor markets, inflation trends, and central bank policy expectations.

US Economics

Jobs Report: Solid Headline, Slower Underlying Trends

• Unemployment rate: Remained unchanged at 4.2% in May, which is reassuring for markets and the Federal Reserve.
• Job creation: 139,000 new jobs added in May, heavily concentrated in leisure and hospitality and healthcare.
• Labor market trends:
  • Continuing jobless claims rose, suggesting a potential slowdown in hiring.
  • The unemployment rate would be 4.6% if not for the decline in the labor force participation rate.
• Fed policy outlook:
  • The stable headline will keep the Fed on hold in June and July.
  • A base case of rate cuts resuming in September is maintained, due to expected slowing job growth and rising unemployment.

Inflation and Tariff Uncertainty

• Core CPI inflation: Expected to rise 0.248% MoM in May, with core PCE at 0.21% MoM.
• Tariff impact: Price increases from tariffs are expected to materialize in late summer/early fall.
• Uncertainty: Delays in tariff decisions and their implementation may prolong inflationary pressures.

ISM Reports: Cooling Signs

• ISM Services Index: Unexpectedly fell to 49.9 in May, indicating a contraction.
• New orders and business activity: Both declined, suggesting weakening demand.
• ISM Manufacturing Index: At 48.5, below expectations, indicating a cooling manufacturing sector.
• Contrast with PMI: S&P PMI remained above 50, showing a discrepancy in economic signals.

Labor Market Churn

• JOLTS job openings: Rose to nearly 7.4 million in April, suggesting increased labor market activity.
• Hiring rate: Increased slightly to 3.5%, but may decline in May due to rising continuing jobless claims.
• Expectations: May jobs data may show a softer 120,000 addition, with the unemployment rate potentially rising to 4.3%.

European Economics

ECB Policy Outlook

• Rate cut expectation: The ECB is expected to cut policy rates by 25 bps.
• Policy pause: The Council may consider pausing further easing due to stable inflation and projections.
• Uncertainty: Global trade tensions and US tariff policy remain a concern for inflation dynamics.
• Monetary easing: Despite the potential pause, the authors believe monetary easing is not complete.

China Economics

The China Travel Economy

• Travel revenue: Inbound travel revenue reached US$94bn or 0.5% of GDP in 2024, up 78% YoY.
• Growth projection: Inbound visitor counts could rise 16.1% YoY in 2025E.
• Spending per visit: Average spending by inbound tourists is ~25% higher than domestic travelers.
• Economic impact: Travel could contribute 0.15ppt to GDP growth and boost services employment.
• Limitations: While travel revenue is growing, it may not significantly offset the entrenched deflationary pressures in the economy.

Key Views and Expectations

Important Disclosures and Policies

• Analyst Certification: All analysts involved in the research are certifying the content independently, with no direct compensation tied to specific recommendations.
• Conflict of Interest: Citi Research may have a conflict of interest due to its business relationships with covered companies.
• Investment Ratings: Ratings are based on expected total return (ETR) and risk, with no direct link to compensation.
• Catalyst Watch: Short-term price movement calls are based on specific events and do not affect long-term equity ratings.
• ETF Information: Information on ETFs is for illustrative purposes only and does not constitute an offer to buy or sell.
• Legal Compliance: The research complies with relevant regulations and includes necessary disclosures for different jurisdictions.

Summary of Key Data

• Unemployment rate (US): 4.2% (unchanged), would be 4.6% without labor force decline.
• New jobs (US): 139,000 in May.
• ISM Services Index (US): 49.9 (contraction), down from 52.0.
• ISM Manufacturing Index (US): 48.5 (below expectations).
• JOLTS job openings (US): 7.4 million in April.
• Inbound travel revenue (China): US$94bn in 2024, up 78% YoY.
• China travel growth: Expected to rise 16.1% YoY in 2025E.
• Core CPI (US): Expected to rise 0.248% MoM in May.
• Core PCE (US): Projected at 0.21% MoM.
• ECB rate cut: Expected 25 bps, but further easing is uncertain.

Conclusion

The Citi Economics reports for the week of June 2–8, 2025, highlight a mixed economic landscape. While the US labor market remains stable, there are signs of slowing growth and potential for future rate cuts. In Europe, the ECB is expected to cut rates but may pause further easing due to external uncertainties. In China, the travel economy is growing rapidly but may not provide substantial relief from deflationary pressures. Investors are advised to consider these reports as one of many factors in their decision-making process.