Fed Sees Rising Risks: May 5 – 9

The Federal Reserve chooses to stay put. Here are the five things we learned from U.S. economic data released during the week ending May 9.

The Federal Reserve declined to change its short-term interest rate target. The statement released following this past week’s Federal Open Market Committee (FOMC) meeting noted “swings in net exports,” but also saw the economy expanding “at a solid pace” with “somewhat elevated” inflation. It also stated that the FOMC “judges that the risks of higher unemployment and higher inflation have risen.” As a result, the committee voted unanimously to keep the fed funds target rate at 4.25 to 4.50 percent and for the Fed to continue shedding its holdings of Treasuries and agency mortgage-backed securities. The statement also reiterated its commitment “to supporting maximum employment and returning inflation to its 2 percent objective.”

The service sector grew in April. The Institute for Supply Management’s Services PMI added 8/10^ths of a point to 51.6. The Services PMI has been above 50.0—indicative of an expanding service sector—for ten straight months. Whereas the business activity/production index lost 2.2 points to a still expanding 53.7, measures for new orders (52.3), employment (49.0), and inventories (53.4) all increased. Eleven tracked service sector industries grew in April, led by accommodation/food services, wholesale trade, and mining. The press release noted that survey respondents commented about higher prices resulting from tariffs and federal agency budget cuts being “a drag on business.”

Imports and the trade deficit surged in March. Exports increased 0.2 percent to a seasonally adjusted $278.5 billion and imports rose 4.4 percent to $419.0 billion. The resulting trade deficit of -$140.5 billion was a record for the Census Bureau/Bureau of Economic Analysis measure. The goods deficit jumped by $16.5 billion to -$163.5 billion and the services surplus narrowed by $0.8 billion to +$23.0 billion. The former reflects dramatic actions by importers to beat anticipated and announced tariffs. Imports surged for pharmaceuticals (+20.9 billion), computer accessories (+$2.0 billion), and passenger cars (+$2.1 billion). Exports grew for passenger cars but declined for civilian aircraft. The U.S. had its largest goods deficits with the European Union, China, and Mexico.

Wholesaler sales and inventories expanded in March. The Census Bureau estimates merchant wholesaler sales increased 0.6 percent to a seasonally adjusted $697.9 billion. Wholesaler sales were up 6.1 percent from a year earlier. Durable and nondurable sales rose 1.0 percent and 0.3 percent, respectively. Merchant wholesaler inventories swelled 0.4 percent to $907.5 billion (+2.2 percent versus March 2024). Durable goods inventories expanded 0.6 percent, while nondurable inventories contracted 0.1 percent. The resulting inventory-to-sales (I/S) ratio held steady at 1.30 (March 2024: 1.35). Both the durables (1.69) and nondurables I/S ratio (0.94) shed a basis point during the month, with the former down 12 basis points from a year earlier.  

Productivity declined in Q1. Nonfarm business output fell 0.3 percent (seasonally adjusted) and hours worked increased 0.6 percent. As a result, the Bureau of Economic Analysis has nonfarm business productivity declining 0.8 percent during the first three months of 2025. Over the past year, output has risen 2.2 percent and hours worked have increased 0.8 percent, leaving nonfarm productivity growing 1.4 percent. Business labor productivity slumped 1.1 percent during Q1 and was up 1.4 percent from a year earlier. Manufacturing sector productivity surged 4.5 percent, including a 7.1 percent increase for durable goods.

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending May 3, 2025, First-Time Claims, seasonally adjusted): 228,000, -13,000 vs. the previous week, -1,000 vs. the same week a year earlier). 4-week moving average: 227,000 (+5.8% vs. the same week a year earlier).
• Consumer Credit (March 2025, Outstanding Non-Real Estate Consumer Credit Balances, seasonally adjusted): $5.007 trillion (+$10.2 billion vs. February 2025; -0.8% vs. March 2024).

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