Steady Labor Conditions and Consumer Spending Offset Inflation Concerns

Matthew Rubin Chief Investment Officer

 

1. Consumer inflation increased modestly last week, supported by higher energy and housing costs, reinforcing expectations for steady interest-rate policy.
2. Retail sales rose for a third straight month last week, though higher prices continued to weigh on consumer spending.
3. Employment data released last week showed modest improvement in hiring, supporting continued labor market stability.

 

1. Consumer Inflation Edges Higher as Energy and Housing Costs Increases

Consumer inflation moved slightly higher last week, indicating price pressures continue across several areas of the economy. The Consumer Price Index (CPI) increased 3.8% from a year earlier in April, coming in modestly above expectations.¹ Higher energy prices were a primary driver, as oil prices remained elevated and energy costs rose nearly 18% compared with the same period last year.¹ Core inflation, which excludes food and energy categories and can provide a clearer view of long-term price trends, also increased slightly above forecasts. Housing-related costs contributed to the increase, as shelter inflation rose following the release of updated government data. Inflation has been above the Federal Reserve’s long-term 2% target for an extended period, while labor market conditions have shown signs of stabilization.¹ Given these trends, policymakers are likely to hold interest rates steady for now while monitoring future economic data.

2. Consumer Spending Steady Despite Rising Price Pressures

Retail sales data released last week showed that consumer spending remained steady through April. Retail sales rose 0.5% during the month, meeting expectations and marking the third consecutive monthly gain.²

Core retail sales, which exclude several more volatile categories, also rose 0.5%, signaling modest growth across broader areas of consumer spending.² Gains were supported by electronics, online retail activity, and higher spending at gasoline stations. However, some of the increases reflect higher prices rather than stronger purchasing power.

In another sign of ongoing inflation pressures, import prices rose at their fastest annual pace in several years. While consumers continue to benefit from prior tax refunds and favorable financial conditions, rising prices and lower savings levels may create headwinds for spending later this quarter.

3. Employment Trends Show Steady Improvement in Job Growth

Employment data released last week point to modest but firmer hiring activity, suggesting labor market conditions remain relatively stable. According to private-sector payroll data, U.S. employers added an average of 33,000 jobs per week over the four weeks ending April 25th, an increase from the prior reporting period.³ While hiring activity continued at a slower pace than historical averages, the level of job creation remained consistent with a labor market that is still supporting broad employment stability.³ 

Slower growth in the available workforce, influenced by demographic trends and shifting labor participation patterns, may also be helping to balance hiring demand. Current conditions continue to suggest a labor market characterized by more measured hiring activity, rather than rapid expansion.³ 

At the same time, layoff activity remained limited, supporting overall employment conditions and keeping the unemployment rate relatively stable.³ Overall, recent data suggest that labor market momentum is holding steady despite a more moderate pace of job growth.

For the period ending 5/15/26.
* Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ U.S. Bureau of Labor Statistics, CPI Economic News Release, May 12, 2026
² United States Census Bureau, Advance Monthly Sales for Retail and Food Services Press Release, May 14, 2026
³ ADP National Employment Report Preliminary Estimate for April 2026, May 12, 2026

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The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
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