The trade deficit narrowed in April, but only because imports fell more than exports. As a result, after providing a big boost in the first quarter, we expect net external trade to have a neutral impact on second-quarter GDP growth. Elsewhere, the drop in first-quarter unit labour costs was revised to 1.6% annualised from 0.9%, suggesting there is little inflationary pressure coming from the labour market. Even with the new tariffs, we expect core PCE inflation to remain well below the Fed’s 2% target.
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