Baker Market Update
2025-05-16

Outside of the Oklahoma City Thunder and Denver Nuggets basketball series (which is now going to a Game 7 Sunday afternoon), all eyes were on this week’s monthly release of the Consumer Price Index (CPI). Tuesday morning’s CPI report for the month of April showed annual inflation at the lowest level since February 2021 (2.3%). CPI was expected to increase by 2.4%. This week’s CPI report does not reflect the full impact of tariffs (there is a lag effect since goods must be shipped and stocked), it does highlight that a slowing economy can put downward or deflationary pressures in categories such as travel and other recreational services. Additional price declines occurred for categories such as gasoline, groceries, apparel, used cars and airlines fares. Core CPI (excluding food and energy) increased at a year-over-year rate of 2.8%, in line with expectations.

The last few months has seen a noticeable decline in the “soft data”. Soft economic data refers to indicators that capture sentiment, expectations and perceptions about the economy, often gathered through surveys and polls. On Tuesday, the National Federation of Independent Business (NFIB) Small Business Optimism Index was released for April. The survey showed a decline in small business confidence as the index fell by 1.6 point to 95.8, marking the second consecutive month below the 51-year average of 98. This is the lowest level since October 2024. The decline in the index suggests small businesses are bracing for weaker economic conditions, potentially impacting hiring, investment, and growth. After the March FOMC meeting, Fed Chairman Jerome Powell stated “it’s the soft data – it’s the survey that are showing, you know, significant concerns, downside risks, and those kind of things. We don’t dismiss that”. Even if the Fed focuses more on the hard data, they are very much aware of the recent decline in the soft data.

Yesterday, we received a slew of economic data. Initial jobless claims rose a little more than expected, 229,000 for the week versus an expected 226,000. Retail sales and the Producer Price Index (PPI) for the month of April were also released yesterday. Retail sales increased 0.1% month over month, this was in line with expectations, but below the prior moth’s revised increase of 1.7%. Analysts noted that tariffs and persistent inflation dampened consumer spending, with April’s tepid growth signaling caution. The PPI report showed an unexpected decline in wholesale prices, signaling a cooling of inflationary pressures at the producer level. The month over month decline of 0.5% was the largest monthly drop since April 2020, well below the expectation of an increase of 0.2%.

This morning, The University of Michigan gauge of consumer sentiment edged down to 50.8 in a preliminary May reading (est. 53.5), down from 52.2 in the prior month. This morning’s report marked the 5th consecutive month of declining sentiment, bringing the index to its lowest level in three years. Consumers anticipate sharply higher prices in the near term, likely fueled by concerns over proposed tariffs.

A quick check in on the markets shows that bond and equity markets are generally unchanged this morning. The 10-Year Treasury Yield is currently sitting at 4.43% with the 2-Year Treasury Yield at 3.97%.

Next week is a week full of various Fed President and Federal Reserve governs out on the speaking circuit. This coming Monday, we will get the monthly update of the Leading Economic Indicators Index. Later in the week, we will get an updated on new and existing home sales.

Have a great weekend and Go OKC Thunder!

University of Michigan – Index of Consumer Sentiment – 10 Year History