The U.S. economic system is experiencing a noticeable slowdown in mid-2025, with sluggish home demand development, muted job beneficial properties, and new tariff actions poised to affect each inflation and general financial momentum, in line with a latest evaluation from UBS International Analysis.
The US Economics Weekly word from the Swiss financial institution famous actual GDP grew at an annualized price of simply 1.2% within the first half of 2025, a major step down from the extra strong tempo noticed in 2023 and early 2024. Quarter-over-quarter development figures level to a sequential weakening, the staff led by economist Jonathan Pingle added, significantly in home demand, which has dropped from above 3% final 12 months to round 1% in latest quarters.
Labor demand is responding in type. Month-to-month nonfarm payroll development has slowed sharply, with July seeing a rise of solely 73,000 jobs—effectively under expectations and accompanied by sizeable downward revisions for earlier months. The three-month common for job beneficial properties is now simply 35,000 per thirty days, a price described as “stall velocity” by Federal Reserve Vice Chair Michelle Bowman and Governor Chris Waller. (Each Bowman and Waller are prominent names floated to replace Fed chair Jerome Powell, a determine the Trump White Home has extensively criticized.) The unemployment price ticked as much as 4.25%, the very best stage since 2021, and the broadest measure of labor underutilization, referred to as U-6, can be trending increased—greater than a proportion level above pre-pandemic ranges.
Crucially, Pingle’s staff discovered shrinking labor power participation quite than a sudden immigration or inhabitants shock is behind the weaker labor power development. “The drop within the labor power participation price has masked how a lot slackening is definitely going down,” the report contends, noting that a number of demographic teams, together with Black People and youngsters, are displaying increased unemployment and falling participation.
Inhabitants development as recorded by the family survey is holding regular close to earlier years’ ranges—contradicting assertions that tighter immigration is meaningfully constricting the labor market. UBS notes this contradicts statements from Jerome Powell: “Regardless of Chair Powell’s pronouncement on the publish FOMC press convention that the immigration slowdown was slowing inhabitants development and thus labor power development, that’s not what is occurring within the precise information. The Family Survey and Institution Survey look extra just like the labor market is slackening, and the family survey itself estimates that inhabitants development just isn’t slowing.”
The typical workweek stays subdued, sitting at 34.25 hours in July—under 2019 ranges and much from the “stretching” typical when labor markets are tight on account of employee shortages. Business-specific information present that job losses should not concentrated in sectors with massive immigrant workforces, additional supporting the view that slack comes from weakened demand, not a provide constraint.
Tariffs set to climb, threatening additional drag
Tariff coverage, after a sequence of negotiations and government actions, is on monitor to turn out to be much more restrictive. The brand new suite of reciprocal tariffs, together with a 35% price on Canadian imports (excluding USMCA-compliant items) and across-the-board hikes affecting practically 70 nations, is anticipated to boost the U.S. weighted common tariff price (WATR) from about 16% to roughly 19% beginning in early August. UBS estimates this can subtract 0.1 to 0.2 proportion factors from development over the following 12 months.
Sectoral carve-outs persist, however with the EU now dealing with a 15% tariff on most exports to the U.S.—decrease than initially proposed, however nonetheless a major rise—UBS expects direct strain on costs for cars, semiconductors, prescribed drugs, and extra. Presidential proposals to slap a 200% tariff on prescribed drugs stay underneath dialogue, however would have large implications if carried out.
Fee cuts on the horizon
With proof mounting that each development and labor markets are softening and that tariffs could additional increase core inflation from 2.8% at the moment to as excessive as 3.4% by year-end, strain is constructing for the Federal Reserve to ease financial coverage. Whereas Chair Jerome Powell saved a potential September price reduce on the desk, he supplied little ahead steering, stating that the totality of incoming information will dictate the following transfer. UBS maintained its expectation that the Federal Open Market Committee will reduce charges by 25 foundation factors in September and by as a lot as 100 foundation factors earlier than the top of 2025.
Finally, the financial institution discovered that the U.S. economic system has entered a transparent slowdown as 2025 unfolds, with fading home momentum, cooling job development, and the shadow of upper tariffs prone to dampen the outlook additional. UBS researchers argue that the information present a demand-driven deceleration, not a provide squeeze, and that the Fed will probably act quickly to cushion the touchdown.
For this story, Fortune used generative AI to assist with an preliminary draft. An editor verified the accuracy of the knowledge earlier than publishing.
