What one hour ago was looking like another positive day in markets has turned decidedly negative as the latest economic data fueled growing stagflation fears.
First up was the ADP jobs numbers for April. Coming two days ahead of the government’s own employment data for April, the ADP report showed just 62,000 private sector jobs created this month, well shy of estimates for 108,000 and March’s 147,000. This disappointing figure represents the weakest print since July 2024.
Next, the government provided its first estimate of first-quarter GDP growth, which came in at a negative 0.3%, a stark contrast to estimates predicting a positive 0.2%. While the quarter concluded in March, economic actors were keenly aware of impending tariffs, prompting them to front-load imports early in the year. According to fundamental economic principles, rising imports—without a corresponding increase in exports—will exert downward pressure on GDP growth.
Indeed, the export-import imbalance notably reduced GDP growth by nearly 5% in the first quarter. Additionally, the economic policies implemented by the Trump administration have also proven to be detrimental, with government spending acting as a drag on GDP for the first time since 2022.
Turning our attention to inflation, the Core PCE price index embedded within the GDP report rose by 3.5%, compared to estimates which suggested a more modest increase of only 3.1%.
This combination of factors is prompting a significant decline in U.S. stocks, with the Nasdaq down 2% and the S&P 500 dropping by 1.5%. Bitcoin (BTC) is also feeling the pressure, slipping about 1% alongside the market to a price of $94,300.
As investors grapple with these unsettling developments, the fears of stagflation appear to be taking hold, creating uncertainty in the financial landscape. For now, stakeholders must keep a close watch on upcoming economic indicators and policy responses that will shape the trajectory of the markets in the coming weeks.
