In a week filled with crucial economic updates, the spotlight turned to inflation, wage growth, GDP, and most importantly, labor market trends. With mortgage rates showing minimal movement, all eyes were on the employment report and broader economic signals for insight into the direction of the U.S. economy.
Strong Job Growth in April
April’s Employment Report provided a clearer snapshot of current labor market trends. The U.S. economy added 177,000 jobs, well above the forecasted 130,000. While this was good news, it was tempered by downward revisions to previous months’ data, which balanced out the surprise gain.
The unemployment rate held steady at 4.2%, in line with expectations. More notably, average hourly earnings rose 3.8% year-over-year — matching last month’s rate — reflecting steady wage growth despite inflationary pressures and higher business costs.
These numbers suggest that the job market remains resilient even as other parts of the economy show signs of slowing. Consistent wage increases are often viewed as a double-edged sword: they put more money into workers’ hands, but they can also add pressure to inflation if not managed carefully by the Federal Reserve.
GDP Decline Tied to Tariff Timing
While job data was encouraging, GDP figures for the first quarter of 2025 were less so. The U.S. economy contracted by 0.3%, well below the anticipated 0.4% increase. This marked the first quarterly decline since early 2022.
However, the drop wasn’t necessarily a sign of weakness in labor market trends or overall economic productivity. Much of the decline stemmed from a massive 41% surge in imports. As businesses and consumers rushed to buy goods before new tariffs took effect, these early purchases skewed the numbers. Imports alone cut about five percentage points off the GDP figure.
Additionally, consumer spending slowed, and government expenditures declined, compounding the downward trend. But economists suggest this dip is temporary. With the tariff-driven rush now behind us, future quarters may show stronger GDP growth as import levels normalize.
Inflation and the Fed’s Dilemma
As the Federal Reserve continues to monitor inflation, its preferred metric — the Core PCE price index — showed a year-over-year increase of 2.6% in March. That’s down from 3.0% the month before and the lowest rate since March 2021. Although progress toward the Fed’s 2.0% inflation target is evident, it’s been slow and inconsistent.
This continued decline in inflation may give the Fed more breathing room. However, the effects of higher tariffs on consumer prices are still unknown. Future inflation could tick upward if tariff-related costs are passed along to consumers — a factor that could influence both interest rate decisions and labor market trends in the months ahead.
Mortgage Rates Stay Stable
Despite all the economic movement, mortgage rates remained relatively unchanged over the past week. Investors have already priced in much of the current economic data, and with no major surprises, the bond market remained calm.
However, rate volatility could return depending on upcoming decisions from the Federal Reserve and new data releases. As always, labor market trends will remain one of the primary drivers of mortgage market activity, as job stability directly impacts consumer confidence and home-buying behavior.
What to Watch Next
Looking ahead, several key indicators are on deck. On Monday, the ISM national services sector index will offer insights into service-sector health — a large component of the U.S. economy. On Tuesday, the Trade Deficit report could offer clues about future GDP movements, especially in relation to imports and exports.
The next Fed meeting is scheduled for Wednesday. While no interest rate change is expected, investors will closely analyze any forward-looking statements for hints about future monetary policy. If inflation stays on a downward path and labor market trends remain solid, we could see more clarity around rate cuts later in the year.
Conclusion: A Complex Yet Resilient Picture
Despite some negative headlines around GDP, the big picture shows a surprisingly resilient U.S. economy. Solid job gains, stable unemployment, and slowing inflation paint a cautiously optimistic outlook. Labor market trends continue to act as a stabilizing force, even as global uncertainty and domestic policy changes add pressure to other economic areas.
Whether you’re a policymaker, business owner, investor, or homebuyer, understanding these labor dynamics is essential. They influence everything from consumer behavior to interest rates, and their direction will shape the second half of 2025 and beyond.
