May 2025 was generally marked by mixed economic news in the U.S., escalating trade tensions, and cautious monetary policies globally. While equity markets showed resilience, underlying economic indicators suggest potential challenges ahead.
Headline PPI decreased by -0.5% month-over-month, contrary to expectations of a +0.2% increase. Year-over-year, the PPI rose by +2.4%, down from +3.4% in March. Meanwhile, Core PPI (excluding food, energy, and trade services) declined by -0.1% in April, the first monthly decrease since April 2020. Year-over-year, core PPI increased by +2.9%.
In the first quarter of 2025, the U.S. economy experienced a contraction, with real Gross Domestic Product (GDP) decreasing at an annual rate of -0.2%, according to the second estimate released by the Bureau of Economic Analysis (BEA). This marked the first quarterly decline in three years, following a +2.4% growth rate in the fourth quarter of 2024.
Some of the key factors contributing to the contraction are as follows:
Imports increased by +42.6%, as businesses accelerated purchases to avoid impending tariffs. Since imports are subtracted in GDP calculations, this surge significantly impacted the overall GDP, subtracting more than five percentage points from growth.
Federal government expenditures fell by -4.6%, the steepest decline in three years, contributing to the overall economic slowdown.
Consumer spending increased by only +1.2%, the weakest pace in three years, reflecting cautious behavior amid economic uncertainties.
The Conference Board’s LEI fell by -1.0% in April to 99.4, following a -0.8% decline in March. This marks the largest monthly drop since March 2023, indicating potential slowing in economic activity.
On the housing front, a modest increase in total housing starts was primarily driven by a surge in multifamily construction, suggesting a shift in builder focus amid economic uncertainties and affordability challenges. The decline in single-family starts and building permits potentially indicates headwinds in the housing market as some markets have seen longer listing times and lower prices as well as increased inventories.
Rising mortgage rates and material costs, influenced by ongoing trade policies and tariffs, have contributed to increased construction expenses, potentially adding thousands of dollars to a new home price. These factors, combined with broader economic concerns, have led to cautious builder sentiment and may impact future construction activity.
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