Economic Commentary – April 2025
- SWSCM
- May 28
- 5 min read
We concluded last month’s commentary by stating that “uncertainty is ubiquitous.” One month forward, we will attach an addendum and assert that vagueness results in volatility. On April 2, a day heralded as “Liberation Day,” President Trump, standing at the presidential podium in the Rose Garden, brandished several placards unveiling the much-anticipated, country-specific, percentage-based reciprocal tariff rates that were to be levied on approximately 90 U.S. trade partners. Not only were the proposed levies much higher and punitive than anticipated by global and multinational economists, investors, companies, and trade industry groups/professionals alike, but more importantly, the reciprocal tariffs failed to address their declared intent. As opposed to factoring in any tariff and non-tariff barriers (subsidies, licenses, quotas, regulations, value-added-taxes, etc.), the calculation of the reciprocal duties were instead based solely on the goods trade deficit the U.S. held with each respective nation. As one would reasonably expect, due to the shock that ensued as investors’ worst-case scenarios were transcended, volatility spiked, and risk markets were engulfed in turmoil. One week later, on April 9, President Trump announced there would be a 90-day pause on the reciprocal levies (which can be directly attributed to the immense volatility and selling pressures evidenced in the U.S. Treasury market), instituting a grace period aimed towards constructing new, altered trade deals with global counterparties.
While the easing of trade tensions in the form of the 90-day reprieve and concessions made on several sector-specific tariffs (electronics, automobiles and parts, and pharmaceuticals) were much welcomed by the markets and most U.S. trade partners, albeit with 10% blanket tariffs still in place, animosity towards the U.S.’s third largest trading partner, China, was ramped up. After engaging in an escalating tit-for-tat spat that lasted for several days, the U.S. ultimately settled on imposing a 145% effective tariff rate on Chinese goods. In retaliation, the Chinese trade coalition levied a 125% effective tariff rate on U.S. imports, pitting the world’s two largest economies in a full-frontal trade war. These exorbitant rates may prove to be unsustainable over the long term as they portend to cause unnecessary harm to both nations’ economies. Treasury Secretary Scott Bessent referenced as much, noting that de-escalation would be the objective going forward, and diplomatic negotiations were the only viable solution.
Amidst the market turbulence, Fed officials harmoniously professed a rather subdued and restrained rhetoric when discussing how revamped trade policy would affect future monetary policy decisions. Maintaining a measured and cautious approach, essentially emphasizing that as a collective they’re in wait-and-see mode, policymakers made no imminent indication that they would be adjusting the federal funds target rate range at next month’s FOMC meeting. While the imposition of tariffs potentially threatens to throw both sides of the Fed’s dual mandate (price stability and full employment) into direct conflict, it was still too early in the proceedings to ascertain the precise effects that commerce alterations and disruptions would have on inflationary pressures, economic growth, and the labor market. As of April 30, the interest rate futures market had assigned a probability of four, 25 basis point rate cuts before the conclusion of the year, which was still double the number Fed policymakers had forecasted in March’s Summary of Economic Projections.
U.S. Treasury yield curve saw the intermediate tenors notch double-digit descents, with 1yr – 7yr yields bearing 3-handles. While the money market tenors were relatively flat, the 20yr and 30yr yields rose 9.5 and 10.7 bps, respectively. The 3m/10yr tenor pair remained inverted.
2-year/10-year spread: 56 basis points
3-month/10-year spread: -13 basis points
2-year/5-year spread: 12 basis points
3-month/30-year spread: 39 basis points
U.S. Treasury Yield Curve Source: Bloomberg
April 2025 Macroeconomic Highlights
Inflation, Expectations, and Consumer Sentiment1:
CPI: 2.4% year-over-year (-0.1% month-over-month); Core CPI: 2.8% year-over-year (+0.1% month-over-month)
PCE: 2.3% year-over-year (0.0% month-over-month);Core PCE: 2.6% year-over-year (0.0% month-over-month)
PPI: 2.7% year-over-year (-0.4% month-over-month); Core PPI: 3.3% year-over-year (-0.1% month-over-month) Core PPI less trade services: 3.4% year-over-year (+0.1% month-over-month)
Inflation Expectations: 1-year horizon: 3.6%, 3-year horizon: 3.0%, and 5-year horizon: 2.9%
Consumer Sentiment: 52.2 vs. 57.0 in March 2025; Current Conditions: 59.8 vs. 63.8 in March 2025
Consumer Expectations: 47.3 vs. 52.6 in March 2025
Labor Market2: The U.S. economy added 228,000 nonfarm payrolls in March, eclipsing the 140,000 expected by economists surveyed by Bloomberg. Notable job gains occurred in health care (+54,000), social assistance (+24,000), retail trade (+24,000), and transportation and warehousing (+23,000).
U-3 official unemployment rate: 4.2% vs. 4.1% expectation: +0.1% from February 2025.
U-6 unemployment rate (marginalized, part-time workers for economic reasons): 7.9% (-0.1%).
Labor force participation rate: 62.5% (+0.1%); Employment-to-population ratio: 59.9% (unchanged).
Average hourly earnings for private nonfarm payrolls rose 9 cents to $36.00 (+0.3% month-over-month, +3.8% year-over-year).
Revisions: February 2025 reduced -34,000 to 117,000; January 2025 slashed -14,000 to 111,000.
Employment Cost Index: +0.9% in the first quarter of 2025 vs. +0.9% in the fourth quarter of 2024.
Gross Domestic Product (GDP)3: According to the advance (initial) estimate, real GDP decreased at an annual rate of -0.3% in the first quarter of 2025 vs. an increase of +2.4% in the fourth quarter of 2024.
Consumption: +1.8%; GDP Price Index: +3.7%; PCE Price Index: +3.6%; Core PCE Price Index +3.5%.
Disposable personal income: +2.7% vs. +1.9% in the fourth quarter of 2024.
Personal savings rate as a percentage of disposable income: 4.0% vs. 3.7% in the fourth quarter 2024.
Housing Market4: Existing-home sales receded -5.9% (month-over-month) from February to a seasonally-adjusted annual rate of 4.02 million in March. Month-over-month sales subsided in all four major U.S. regions.
West: -9.4%, South: -5.7%, Midwest: -5.0%, and Northeast: -2.0%.
Year-over-year sales ebbed -2.4%, down from 4.12 million in March 2024.
Total housing inventory registered 1.33 million units, +8.1% from February, and +19.8% from one year ago (1.11 million units). Unsold inventory sits at a 4.0-month supply at the current sales pace.
The median existing-home price for all housing types was $403,700, +2.7% from March 2024 ($392,900), as prices rose in all four major U.S. regions.
Average commitment rate for a 30-year, conventional, fixed-rate mortgage: 6.81%.
New Home Sales: 724,000 (+7.4% month-over-month).
1 Source: Bureau of Labor Statistics (BLS), U.S. Department of Commerce, Federal Reserve Bank of New York – Survey of Consumer Expectations, and University of Michigan Surveys of Consumers
2 Source: Bureau of Labor Statistics (BLS)
3 Source: Bureau of Economic Analysis (BEA)
4 Source: National Association of Realtors (NAR), U.S. Census Bureau, and The Department of Housing and Urban Development
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