The U.S. economic system is experiencing a noticeable slowdown in mid-2025, with sluggish home demand progress, muted job good points, and new tariff actions poised to affect each inflation and total financial momentum, in keeping with a current evaluation from UBS International Analysis.
The US Economics Weekly word from the Swiss financial institution famous actual GDP grew at an annualized charge of simply 1.2% within the first half of 2025, a big step down from the extra strong tempo noticed in 2023 and early 2024. Quarter-over-quarter progress figures level to a sequential weakening, the crew led by economist Jonathan Pingle added, notably in home demand, which has dropped from above 3% final 12 months to round 1% in current quarters.
Labor demand is responding in variety. Month-to-month nonfarm payroll progress 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 good points is now simply 35,000 monthly, a charge described as “stall pace” by Federal Reserve Vice Chair Michelle Bowman and Governor Chris Waller. (Each Bowman and Waller are outstanding names floated to exchange Fed chair Jerome Powell, a determine the Trump White Home has extensively criticized.) The unemployment charge ticked as much as 4.25%, the best degree since 2021, and the broadest measure of labor underutilization, often known as U-6, can be trending greater—greater than a proportion level above pre-pandemic ranges.
Crucially, Pingle’s crew discovered shrinking labor pressure participation moderately than a sudden immigration or inhabitants shock is behind the weaker labor pressure progress. “The drop within the labor pressure participation charge has masked how a lot slackening is definitely happening,” the report contends, noting that a number of demographic teams, together with Black People and youngsters, are displaying greater unemployment and falling participation.
Inhabitants progress 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 put up FOMC press convention that the immigration slowdown was slowing inhabitants progress and thus labor pressure progress, that isn’t what is going on 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 progress will not be slowing.”
The common workweek stays subdued, sitting at 34.25 hours in July—under 2019 ranges and much from the “stretching” typical when labor markets are tight because of employee shortages. Trade-specific information present that job losses are usually not concentrated in sectors with giant 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 observe to grow to be much more restrictive. The brand new suite of reciprocal tariffs, together with a 35% charge on Canadian imports (excluding USMCA-compliant items) and across-the-board hikes affecting practically 70 international locations, is anticipated to lift the U.S. weighted common tariff charge (WATR) from about 16% to roughly 19% beginning in early August. UBS estimates this may subtract 0.1 to 0.2 proportion factors from progress over the following 12 months.
Sectoral carve-outs persist, however with the EU now going through a 15% tariff on most exports to the U.S.—decrease than initially proposed, however nonetheless a big rise—UBS expects direct stress on costs for cars, semiconductors, prescription drugs, and extra. Presidential proposals to slap a 200% tariff on prescription drugs stay beneath dialogue, however would have large implications if applied.
Fee cuts on the horizon
With proof mounting that each progress and labor markets are softening and that tariffs could additional increase core inflation from 2.8% at present to as excessive as 3.4% by year-end, stress is constructing for the Federal Reserve to ease financial coverage. Whereas Chair Jerome Powell stored a doable September charge minimize 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 minimize charges by 25 foundation factors in September and by as a lot as 100 foundation factors earlier than the tip 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 progress, 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 possible 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 data earlier than publishing.
