Business World Review – The health of the U.S. economy is currently a mixed bag, with recent data showing both surprising strength and underlying weaknesses.
Here is a summary of the most relevant stories and key economic indicators:
The U.S. economy grew at a 3.0% annualized rate in the second quarter of 2025, a significant reversal from the 0.5% contraction in the first quarter.
A major factor in the Q2 growth was a sharp drop in imports, the largest since the COVID-19 pandemic. This decrease was largely a result of companies stockpiling goods in Q1 to get ahead of proposed tariff hikes. This has led some economists to caution that the headline GDP number is masking a slowing in underlying economic performance. A more stable measure of core growth, which excludes volatile items, slowed to 1.2% in Q2 from 1.9% in Q1.
Inflationary pressures have continued to moderate. The core Personal Consumption Expenditures (PCE) index, a key inflation gauge for the Federal Reserve, rose 2.5% in Q2, down from 3.5% in Q1. This has led to expectations that the Fed may consider cutting interest rates.
Job Growth Slowing: Recent reports indicate a softening labor market. The economy added just 73,000 jobs in July, with significant downward revisions to the May and June figures, suggesting a much weaker job market than previously thought.
Despite the slowdown in job creation, the overall unemployment rate remains low at 4.2% as of July. However, this masks disparities, with recent college graduates and younger workers facing a tougher job market. The labor force participation rate for prime-age workers (25-54) has been solid, but the rate for workers 55 or older has declined to an eighteen-year low, reflecting broader demographic trends.
The labor market is showing a unique pattern of gradual softening rather than a sharp downturn. Companies are pulling back on new hires but are not yet engaging in widespread layoffs. The voluntary resignation rate, a measure of worker confidence, has also dropped below pre-pandemic levels.
President Donald Trump’s trade policies, including newly reinstated import tariffs, are a central source of uncertainty. Economists are divided on the impact, with some arguing they will damage the economy by raising costs and others acknowledging they are meant to protect American jobs. The anticipation and implementation of these tariffs have caused significant volatility in trade and investment.
The Federal Reserve is under pressure to cut interest rates, but it has so far held off, citing low unemployment and elevated inflation. However, the recent weak jobs report has increased the likelihood of a rate cut in September.
Consumer spending has shown lackluster growth, and private investment has plunged. This suggests that households and businesses are becoming more cautious amid policy uncertainty.
The International Monetary Fund (IMF) has raised its global and U.S. growth forecasts for 2025, citing a weaker-than-expected impact from tariffs. However, the IMF warns that risks are still tilted to the downside if trade tensions escalate. The Federal Reserve Bank of Atlanta’s “GDPNow” model is currently forecasting a 2.1% growth rate for the third quarter of 2025.
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