The U.S. economic system is experiencing a noticeable slowdown in mid-2025, with sluggish home demand progress, muted job features, and new tariff actions poised to impression 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 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 progress figures level to a sequential weakening, the staff led by economist Jonathan Pingle added, notably in home demand, which has dropped from above 3% final yr 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—properly under expectations and accompanied by sizeable downward revisions for earlier months. The three-month common for job features is now simply 35,000 monthly, a price described as “stall pace” by Federal Reserve Vice Chair Michelle Bowman and Governor Chris Waller. (Each Bowman and Waller are outstanding names floated to switch Fed chair Jerome Powell, a determine the Trump White Home has extensively criticized.) The unemployment price ticked as much as 4.25%, the best degree since 2021, and the broadest measure of labor underutilization, generally known as U-6, can also be trending greater—greater than a share level above pre-pandemic ranges.
Crucially, Pingle’s staff discovered shrinking labor pressure participation fairly than a sudden immigration or inhabitants shock is behind the weaker labor pressure progress. “The drop within the labor pressure participation price 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 exhibiting 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’s not what is occurring within the precise knowledge. The Family Survey and Institution Survey look extra just like the labor market is slackening, and the family survey itself estimates that inhabitants progress 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 resulting from employee shortages. Business-specific knowledge present that job losses will not be 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 collection of negotiations and government actions, is on observe to develop into 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 predicted to boost the U.S. weighted common tariff price (WATR) from about 16% to roughly 19% beginning in early August. UBS estimates it will subtract 0.1 to 0.2 share factors from progress over the following yr.
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.
Price cuts on the horizon
With proof mounting that each progress and labor markets are softening and that tariffs might additional enhance 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 stored a potential September price reduce on the desk, he supplied little ahead steerage, stating that the totality of incoming knowledge 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 tip of 2025.
In the end, 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 info present a demand-driven deceleration, not a provide squeeze, and that the Fed will doubtless 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.
