A series of key U.S. economic indicators released today offered a nuanced and somewhat contradictory picture of the American economy. With surprises both to the upside and downside, investors and policymakers are left to interpret conflicting signals on inflation, growth, trade, and employment.

Core PCE Inflation Accelerates to 3.5% – A Red Flag for the Fed

The most closely watched data point was the Core PCE Price Index for Q1, which rose to 3.5%, slightly above the forecast of 3.4% and significantly higher than the previous reading of 2.6%. As the Federal Reserve’s preferred inflation gauge, this uptick confirms that inflationary pressures remain persistent, especially in core categories excluding food and energy. This reading complicates prospects for imminent rate cuts, as inflation appears far from anchored.

Durable Goods Orders Surge 16.4% – Strong Industrial Momentum

May’s durable goods orders delivered a substantial upside surprise, soaring by 16.4% month-over-month—nearly double the consensus estimate of 8.6%, and a sharp reversal from April’s decline of 6.6%. The strength in capital goods points to robust business investment and could support medium-term growth, suggesting that at least parts of the real economy remain resilient.

GDP Contracts by 0.5% – Growth Weakness Resurfaces

In contrast to upbeat manufacturing data, Q1 GDP contracted by 0.5%, compared to expectations of a smaller 0.2% decline and growth of 2.4% in the prior quarter. This signals underlying fragility in the U.S. economy, potentially driven by weaker consumer spending, government cuts, or inventory corrections. While one negative quarter does not make a trend, it raises concerns ahead of Q2 results.

GDP Price Index Climbs to 3.8% – Inflation Broadens

The GDP Price Index rose by 3.8%, exceeding both the consensus (3.7%) and last quarter’s figure (2.3%). This reinforces the notion that inflation is not limited to specific segments, and instead is more widespread across the economy. Such data further reduces the Fed’s room to maneuver without risking a reacceleration in prices.

Goods Trade Deficit Widens to $96.59 Billion – External Pressures Mount

The goods trade balance for May deteriorated sharply, with the deficit expanding to $96.59 billion, significantly wider than the expected $86.3 billion. This suggests either a rebound in domestic demand for imports or weakening export performance—possibly due to a stronger dollar or softer global demand.

Initial Jobless Claims Edge Down to 236K – Labor Market Still Steady

Weekly initial jobless claims fell to 236,000, lower than the 244,000 expected and down from 246,000 previously. While this suggests continued labor market stability, the modest decline does not signal acceleration in hiring, but rather a plateau in unemployment trends. The job market remains solid, but not overheating.

Outlook: A Complex Landscape for Policy and Markets

Today’s data releases paint a complex picture. Inflation is proving stickier than anticipated, growth is faltering, and trade imbalances are widening, even as industrial production and employment offer reasons for optimism. For the Federal Reserve, this mix presents a dilemma: how to bring down inflation without triggering a deeper slowdown. Markets will now turn their attention to upcoming speeches from Fed officials and June’s economic data due in early July.