{"id":224906,"date":"2025-06-02T10:15:00","date_gmt":"2025-06-02T14:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=224906"},"modified":"2025-06-03T03:31:59","modified_gmt":"2025-06-03T07:31:59","slug":"economic-update-week-of-june-2-2025","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-week-of-june-2-2025\/","title":{"rendered":"Economic Update – Week of June 2, 2025"},"content":{"rendered":"\n

Growth<\/h2>\n\n\n\n

The U.S. economy slowed more than expected in 1Q, with real GDP dropping 0.2% annualized. Consumer spending increased 1.2%, with goods up 0.1% and services up 1.7%. Private investment surged 24.4% due to inventory spikes before tariffs, while government spending fell -0.7% due to reduced federal spending. Net exports dragged growth by 4.9% due to a 42.6% import increase. Despite tariff-related distortions to trade, economic momentum still looks solid, allowing the Fed to hold rates steady for the foreseeable future.<\/p>\n\n\n\n

Profits<\/h2>\n\n\n\n

The 1Q25 earnings season has come to a close with a projected pro forma EPS of $63.45. This estimate would represent y\/y growth of 12.4% and q\/q growth of -3.5%. Looking at the three main sources of EPS growth, sales, margins and shares are expected to contribute 5.1, 8.4 and -1.1 percentage points, respectively, to y\/y growth. 77% of companies have beaten estimates, and earnings have come in 10.0% above consensus, driven by strong beats from the Mag 7. Technology is again contributing the majority of EPS growth, followed by health care on weak comparisons. Energy and materials are still struggling through weak oil prices and muted demand from China. While results have been solid, management teams are concerned about tariffs and discussing plans for cost cutting and price increases.<\/p>\n\n\n\n

Risks<\/h2>\n\n\n\n

The 1Q25 earnings season has come to a close with a projected pro forma EPS of $63.45. This estimate would represent y\/y growth of 12.4% and q\/q growth of -3.5%. Looking at the three main sources of EPS growth, sales, margins and shares are expected to contribute 5.1, 8.4 and -1.1 percentage points, respectively, to y\/y growth. 77% of companies have beaten estimates, and earnings have come in 10.0% above consensus, driven by strong beats from the Mag 7. Technology is again contributing the majority of EPS growth, followed by health care on weak comparisons. Energy and materials are still struggling through weak oil prices and muted demand from China. While results have been solid, management teams are concerned about tariffs and discussing plans for cost cutting and price increases.<\/p>\n\n\n\n

Jobs<\/h2>\n\n\n\n

The April Jobs report was relatively muted, indicating the labor market is still in good condition. Nonfarm payrolls increased by 177k, exceeding expectations, while prior months were revised down by 58k, raising the three-month average to 155k. Services led private payroll gains, with health care at the forefront, while manufacturing employment was unchanged. Government payrolls increased but were weighed down by a decline in federal payrolls. The unemployment rate remained at 4.2%, and wages rose 0.2% m\/m and 3.8% y\/y. With a solid report, the Fed should have enough confidence in the health of the labor market for now.<\/p>\n\n\n\n

Inflation<\/h2>\n\n\n\n

The April CPI report came in softer than expected, suggesting that businesses have been slow to pass on tariff-related costs to consumers. Headline CPI rose 0.2% m\/m and 2.3% y\/y, while core CPI rose 0.2% m\/m and 2.8% y\/y. Core goods were up just 0.1% as apparel and autos were unexpectedly weak. That said, tariff impacts were apparent in some products, such as appliances and photo equipment, although these have low weights in the index. Elsewhere, shelter increased 0.3% m\/m while core services ex. shelter rose 0.2%. This softer report, coupled with recent trade deal news, is certainly welcome. However, even if the 10% baseline tariff is all that stands after the dust settles, inflation could still bounce to 4% by year-end.<\/p>\n\n\n\n

Investment Themes<\/h2>\n\n\n\n