LIVE MARKETS-Data tsunami: GDP, PCE, ADP, pending home sales, mortgages

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DATA TSUNAMI: GDP, PCE, ADP, PENDING HOME SALES, MORTGAGES

Investors were inundated by an economic deluge on Wednesday, much of which they frankly didn't care for.

The U.S. economy shrank by 0.3% at quarterly annualized rate in the first three months of 2025, a reversal from the 2.8% growth Q4, and weaker than the 0.3% growth analysts estimated.

It was the first negative GDP reading since Q2 2022.

Delving deeper into the Commerce Department's first stab at first-quarter GDP USGDPA=ECI, a 2.5% decline in final sales offset a 9.8% surge in business investment - in particular a 22.5% jump in equipment - which suggests U.S. businesses moved major purchases forward to beat the tariffs.

Private inventories were the biggest contributor to the upside, with consumer spending dented by a 3.4% drop in durable goods purchases amid economic uncertainties.

Net trade was the biggest detractor, by far, subtracting 4.8% from the headline.

"We got to these numbers because of Trump's policies, right? They've created uncertainty and when you create uncertainty, nobody's going to put their foot on the accelerator," Peter Cardillo, chief market economist at Spartan Capital Securities told Reuters.

In fact, the report "may accelerate the administration in perhaps reversing the tariff policy, and that would psychologically be a big boost to the economy."

The Commerce Department also released its highly anticipated Personal Consumption Expenditures (PCE) report USPCE=ECI.

The PCE price index, Powell & Co's preferred inflation yardstick, is a good place to start.

Headline and core prices were unchanged on a monthly basis, and rose respectively by 2.3% and 2.6% year-over-year.

These last major inflation readings for March were essentially in line with consensus, and together they show price growth remains on its long and winding road down to Fed's average 2% inflation target.

Elsewhere in the report, personal income increased by 0.5%, stronger than the 0.4% analysts expected, and consumer spending rose by 0.7%, accelerating from February's 0.5% growth.

Digging deeper, a 3.2% monthly increase in spending on durable goods could be a symptom of trying to head off expected price increased due to tariffs.

Disposable income increased 0.5%, which pushed the saving rate - or the unspent portion of disposable income - down to 3.9% to 4.1%.

Private employers increased their payrolls by 62,000 in April, according to payrolls processor ADP, marking a 57.8% deceleration from March.

While ADP's National Employment index USADP=ECI is not a reliable predictor of official Labor Department data, the number printed 63,000 fewer than the 125,000 private payrolls gain analysts expect Friday's employment report to show.

The graphic below tracks ADP's NEI, and measures its accuracy (or lack thereof) relative to Labor Department data.

Turning to the housing market, signed contracts for the sales of pre-owned homes USNAR=ECI grew by 6.1% last month, blasting past the 1.0% growth economists predicted.

The National Association of Realtors' (NAR) Pending Home Sales report is considered among the housing market's most forward-looking indicators, as signed contracts typically turn into actual sales a month or two down the road.

Much of that increase is attributable to the fact that, in March at least, mortgage rates were headed lower.

"Home buyers are acutely sensitive to even minor fluctuations in mortgage rates," writes Lawrence Yun, NAR's Chief Economist. "While contract signings are not a guarantee of eventual closings, the solid rise in pending home sales implies a sizable build-up of potential home buyers, fueled by ongoing job growth."

Speaking of which the cost of financing home loans inched lower, but not enough to impress would-be borrowers, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate USMG=ECI shed a single basis point to land at 6.89%, easing from a two-month high.

Nevertheless, applications for loans to purchase homes USMGPI=ECI slid by 4.4% and refi demand USMGR=ECI, dipped by 3.7%.

The average 30-year fixed rate is now 40 basis points cooler than it was during the same week last year.

Over the same time period, purchase and refi demand have improved by 3.5% and 42.0%, respectively.

And finally, midwest factory activity contracted at a slower-than-expected pace this month.

MNI Indicators' Chicago purchasing managers' index (PMI) USCPMI=ECI dipped 3 points to 44.6, weaker than the 45.5 analyst estimate.

A PMI reading below 50 indicates monthly contraction.

On Thursday, the Institute for Supply Management is due to unveil its broader, nationwide PMI reading for February, which is seen inching down one point to 48.0.

(Stephen Culp)

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