June 2, 2025 – The latest economic and market news presents a mixed picture of optimism and concern. Consumer confidence showed a partial rebound in May, driven by the recent U.S./China trade agreement, which boosted optimism and improved the future outlook. However, CEO confidence has significantly declined due to rising concerns about geopolitical instability and tariffs, with many CEOs anticipating a recession in the next 12-18 months. And while the Fed's preferred inflation gauge continues to ease, potential price hikes by major retailers could reverse this trend in the weeks ahead. In the meantime, the housing market is being put on hold, with mortgage rates staying high, delinquency rates remaining steady, and construction spending declining for the third consecutive month as developers continue to wait and see.

Consumers feel less pessimistic about the future outlook: The Conference Board Consumer Confidence Index bounced back partially in May to 98 following five straight months of decline, as consumers optimism got a boost from the trade agreement between the U.S. and China. The rebound, which started before the May 12 U.S./China trade truce, gained momentum after the announcement. The Present Situation Index increased 4.8 points to 135.9 in May, while the Expectation Index jumped 17.4 points to 72.8. Consumers’ perception of the economy was likely affected by the recovery of the financial market, as the S&P 500 index had increased more than 10% between the April survey cutoff date and the May survey cutoff date. Despite a solid bounce back in the overall confidence, consumers remained worried about the labor market situation as their appraisal of current job availability weakened for the fifth straight month. Those who planned to purchase a home improved from April though, but the share could continue to fluctuate until rate movements stabilize.

CEOs lose confidence as concerns about geopolitical instability and tariffs rise: Business leaders’ optimism on the economy and business conditions took a deep dive in the latest report, as the measure of CEO confidence fell by 26 points in Q2 2025 to 34, according to the Conference Board Measure of CEO Confidence. The dip was the largest quarter-over-quarter decline in the history of the survey, and the level it reached was the lowest since Q4 2022. More than four out of five CEOs (83%) surveyed said that they expect a recession in the next 12-18 months, but most of them did not anticipate any change in the size of their workforce over the coming year. The trade truce between the U.S. and China announced on May 12 seemed to have eased some of the CEOs’ concerns, as those who responded after the date tended to be somewhat less pessimistic than those responded before the date. When asked about risks impacting their industries, CEOs ranked “Geopolitical instability” (59%), “Trade and tariffs” (58%) and “Legal and regulatory uncertainty” (536%) as top concerns on their list.

Fed’s preferred inflation gauge continues to ease: The personal consumption expenditure price index (PCE) – the Fed’s favorite inflation indicator – increased 0.1% on a month-over-month basis in April and was up 2.1% from a year ago, according to the Department of Commerce. Excluding food and energy, the core PCE recorded a 2.5% year-over-year increase, and reached the lowest level since March 2021. Despite the latest decline in prices, inflation could see a quick turnaround in the near term as multiple major retailers – including Costco, Best Buy, Target, and Walmart - mentioned that they have already raised some prices or plan to hike them in the coming weeks. With the latest PCE inflation data mostly in line with expectations, mortgage rates did not move much after the release. 

Mortgage delinquency rate remains steady in Q1: Mortgage delinquency remained steady at the end of Q1 2025 and was unchanged year-over-year, according to a recent report from Cotality. Mortgage borrowers who were late in making their payments by at least 30 days or more accounted for 2.8% of all outstanding mortgages in March 2025, unchanged from March 2024 when the same number of mortgages were delinquent. Fifteen states and the District of Columbia (D.C.) reported year-over-year increases in the overall delinquency rate, with D.C. (0.7%) logging the highest increase, followed by Florida (0.3%) and Nebraska (0.3%). With home price growth stabilizing and the economy slowing in the coming quarters, mortgage delinquencies could inch up before the end of the year but are not expected to rise sharply in the next 12 months.

Construction spending falls again on weak single-family housing projects: U.S.construction spending in April declined for the third straight month as elevated interest rates continued to affect the demand side and the supply side of the housing market. According to the latest Commerce Department’s monthly report, total outlays dropped 0.4% month over month in April as residential construction spending dipped 0.9% from the prior month and was down 4.7% from the year-ago level. The $904.6 billion pace in April was the lowest level in seven months, and the softening in spending was due primarily to the drop of 1.1% in outlays on new single-family housing projects in April. Multifamily construction also pulled back but private apartment outlays only slipped 0.1% in April after two straights months of increase. Home improvement spending declined 0.8% month-over-month as well and was 5.5% below the year-ago level in April. With trade tensions continuing to linger on, building material costs will likely rise in the months ahead while interest rates remain elevated. As such, construction activity and spending could remain soft in the coming months.

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