The economy may have cooled in the first quarter, as it does every year, but the markets are watching to see if wages heated up.
Economists expect to see 2 percent growth in the first quarter, down from 2.9 percent in the final quarter of 2017, when GDP data is released at 8:30 a.m. ET Friday. Employment costs for the first quarter are expected to rise 0.7 percent, compared with a 0.6 percent gain in the fourth quarter, according to Thomson Reuters.
Traders are watching for any numbers that could signal the Fed that the inflation picture is heating up ahead of its meeting next week. It's not expected to move on rates or release new projections, but it will have a post-meeting statement. The Fed is expected to raise rates in June and issue new forecasts on the economy and interest rates.
Bond yields retreated, with the 10-year mostly hovering just below 3 percent.
"[Investors] don't care much about growth, but they do care about inflation," said Michael Schumacher, director of rate strategy at Wells Fargo. The bond market is especially vigilant for anything that could make the Fed shift its forecast to a faster hiking pace, so Friday's data could be a catalyst for higher yields if those numbers surprise on the upside.
Within the GDP data, there is also a core PCE prices number markets are watching. It is expected to be up 2.4 percent.
"Given that in Q1, you always have this weird seasonality everybody is expecting a weak [GDP] number," said Bank of America Merrill Lynch senior economist Joseph Song. "If ECI surprises either way, that could get the market to react."
Song said the first quarter could be affected by bad winter weather and storms, but he upped his forecast to 1.9 percent for GDP after Thursday's strong trade data and durable goods. March's deficit narrowed to $68 billion from $75.9 billion in February, on a surprise 2.5 percent jump in exports and 2.1 percent decline in imports.
"We see this every year with the first quarter coming in weak and a strong bounce back in the following two quarters. If you don't see better business investment and consumer spending in April and May that's going to be disappointing," he said. "The onus is on the data to shine in April."
There is also consumer sentiment at 10 a.m. ET.
Earnings could also be a driver for the market Friday after Amazon's big earnings beat drove its stock 6 percent higher in after-hours trading.
ExxonMobil and Chevron report before the bell. Reports are also expected from Colgate-Palmolive, Honda Motor, Sanofi, Sony, Daimler, Eni, Dominion Energy, Moody's, Interpublic, Autoliv, Charter Communications, Phillips 66, Weyerhaeuser, Embraer and TransCanada.