JPMorgan_Econ_FI-United_States-115326211_17页_3mb

United States Economic Summary

Core Content

The U.S. economy is currently experiencing a mix of stable labor markets and subdued growth, with key indicators pointing to a potential slowdown later in the year. The Federal Reserve (Fed) is expected to maintain its current monetary policy stance, with no immediate easing bias. The U.S. and China are likely to maintain high tariff rates, although there is a possibility of de-escalation, which could significantly reduce the overall effective tariff rate. A tentative U.S.-UK trade deal suggests a new normal of at least 10% reciprocal tariffs, with some carve-outs.

Main Points

• Tariffs and Inflation: The effective tariff rate remains near 23%, with the U.S. and China possibly maintaining rates above 60% for now. Tariff pass-through to inflation is expected to occur later than initially anticipated due to inventory accumulation, competitive pressures, and substitution effects.

• Economic Outlook: The economy is expected to rebound to a 2.0% growth pace this quarter before entering a mild recession in the second half of the year. This is based on the assumption that inflation will gradually take a bite out of consumer spending and business investment.

• Fed Policy: The Fed is not expected to cut rates in the near term, with the focus on maintaining price stability. Chair Powell emphasized the importance of price stability as a key mandate, and the first rate cut is anticipated in September.

• April Data:

  • Core CPI is forecast to rise by 0.34% m/m, lifting the year-over-year (YoY) rate to 2.9% from 2.8% in March.
  • Retail Sales are expected to rise by 0.1% m/m, following a strong 1.5% increase in March. This is attributed to front-loaded demand for autos before new tariffs took effect.
  • Jobless Claims are anticipated to stabilize at around 225k in the week ending May 10, with a seasonal spike expected in early June.

Key Economic Indicators

Inflation (CPI)

• Core CPI: Expected to rise by 0.34% m/m in April.
• Headline CPI: Likely to remain stable at 2.4% YoY.
• Energy Prices: The energy CPI is expected to remain effectively unchanged due to mixed signals from crude oil and gasoline prices.
• Food Prices: Expected to rise by 0.3% m/m, with some increases from imports, especially from Mexico.

Producer Price Index (PPI)

• Core PPI: Expected to increase by 0.3% m/m.
• Energy Prices: Likely to decline on the month.
• Prices Paid and Received: Remain elevated, with the PPI price indexes stabilizing in April.

Retail Sales

• Total Retail Sales: Expected to rise by 0.1% m/m in April.
• Ex-Autos Sales: Expected to grow by 0.5% m/m, driven by food services and other categories.
• Auto Sales: Unit sales declined by 3.1% m/m as the front-loading effect faded, but average transaction prices rose by 2% m/m.

Manufacturing Surveys

• Philadelphia Fed Manufacturing Index: Expected to improve to -10 from -26.4 in April, with a possible recovery in May.
• Empire State Manufacturing Index: Expected to improve to -5.0 from -8.1 in April, with continued pressure on prices and a weak outlook for production.

Service Sectors

• Services PMI and ISM Surveys: Both continue to show slow growth, consistent with a broader economic slowdown.
• Regional Fed Surveys: Tend to reflect sentiment more than actual activity, showing a more pronounced decline than national indices.

Implications

• Trade Deal Impact: The U.S.-UK trade deal could reduce the effective tariff rate on UK goods imports from 11.5% to 6.5%, but the UK's digital service tax may limit further U.S. tariff reductions.
• Tariff Effects: The full impact of tariffs on consumer prices is expected to be delayed, with upward pressure on core CPI likely to emerge over the next few quarters.
• Economic Volatility: There is potential for volatility in the April CPI report due to uncertainty around the extent of tariff pass-through.
• Consumer Behavior: The recent surge in auto sales and the anticipated slowdown in travel-related spending indicate shifting consumer behavior in response to trade policies and economic conditions.

Summary of Forecasts

The overall economic outlook remains cautious, with inflation and growth pressures likely to intensify in the coming months.