If you’re interested in understanding the current state of the U.S. economy and corporate America, and what the rest of the year might look like (and who isn’t?), this was the week for you—with five days packed full of earnings reports, policy announcements, and economic data.
And although the picture that emerged from all that information was arguably more fuzzy than sharp, a couple of things do seem clear: The economy is limping, not booming, and the impact of tariffs is finally being felt.
The most important data point of the week came on Friday morning, when the Bureau of Labor Statistics reported that the U.S. economy created just 73,000 jobs in July.
More importantly, the BLS also said that the jobs numbers for May and June had been revised dramatically downward: The May number went from an estimated 144,000 jobs created to just 19,000 jobs, while the estimate of jobs created in June fell from 147,000 jobs to just 14,000.
Even assuming that the July number is correct (and that it won’t eventually be revised downward as well), that means that the U.S. economy created just 35,000 jobs a month, on average, over the past three months, compared with 168,000 jobs a month last year.
Employers pump the brakes on hiring
The current jobs numbers are not quite as terrible as that comparison suggests, since a drop in immigration and the continued aging of the population mean that the economy needs to create fewer jobs in order to stay at full employment. (Unemployment in Friday’s report was still just 4.2%.)
But the jobs number does suggest that, at the very least, businesses are being far more cautious about adding jobs. And that’s only confirmed when you look at the details of the jobs report: The U.S. lost manufacturing jobs in each of the past three months, while essentially all of the private-sector job growth since May has come in healthcare and social services.
Not all the news this week was bad: On Wednesday, gross domestic product (GDP) growth in the second quarter came in at a solid 3%. That was a big jump from the negative number we got in the first quarter, even if it still means GDP grew in the first half of the year at a below-average 1.2%.
Average hourly earnings are up 3.9% year over year. And earnings reports gave us blowout earnings numbers from Microsoft and Meta, good numbers from Apple and Amazon and, perhaps most interestingly, excellent numbers from Mastercard, which suggests consumers are continuing to spend.
Still, there were reasons for concern, particularly with that 3% GDP number.
Private purchases—which are generally thought of as a good measure of domestic demand—were up just 1.2% year over year. Consumption rose 1.4%, which is respectable but not impressive. Business investment—particularly investment in everything other than computer equipment—actually fell. And spending on imports tumbled sharply.
The AI boom is fueling massive investment in technology and computer equipment, which is boosting overall GDP. But while Big Tech is roaring, much of the rest of the economy seems to be drifting in the doldrums.
Normally, that would have made a strong case for the Federal Reserve to cut interest rates at its meeting this week (it didn’t), just as President Donald Trump has been berating Fed chair Jerome Powell to do. The problem for the Fed is that even as the economy seems to be stalling, or at least slowing down, inflation has shown no sign of going away and, in fact, it may be picking up.
In addition to all the other data this week, we heard news about the personal consumption expenditures price index—the Fed’s preferred measure of inflation—which jumped 0.3% in July and is now up 2.6% year over year, well ahead of the Fed’s 2% inflation target.
So the Fed is looking at a weak job market and stubbornly high inflation: not a great place to be in.
The elephant in the room
The big complicating factor in all this, of course, is the tariffs that Trump has imposed, paused, rolled back, and now is preparing to impose again.
To begin with, the tariffs—and how businesses have responded to them—have a lot to do with those big swings in GDP growth we saw in the first half of the year. Imports spiked in the first quarter as businesses loaded up on inventory before the tariffs hit, helping shrink the GDP. Then they plummeted in the second quarter as businesses worked through that inventory, giving GDP an artificial boost.
The tariffs are also eating into company profits. This week, Black & Decker, Ford, and Procter & Gamble all said that tariffs had hurt their earnings. And they’re starting to feed into inflation: Adidas said this week that it may hike prices to deal with higher costs, and P&G said it would be raising prices on 25% of its products.
The impact of tariffs could also be seen in this week’s economic reports: Goods prices (the prices that tariffs would have the most direct impact on) were up 3% year over year.
The uncertainty surrounding Trump’s tariff policy—and where rates are going to end up—has also made it difficult for companies to plan and to invest. And they’ve made consumers—already unhappy with inflation—more cautious, which you can see in consumer sentiment numbers.
The current University of Michigan consumer sentiment index, which was released on Friday, shows that consumer sentiment, while better than it was in April, is still broadly negative, down 7% from a year ago. And consumer expectations of the future are even worse, down 16% year over year.
All of this arguably helps explain why so many businesses seem to have been in a holding pattern: Caution is a logical response to uncertainty.
Trump removed some of that uncertainty Thursday night when he issued a new executive order imposing new tariff rates on almost every country in the world—rates that are scheduled to go into effect on August 7.
The rates are in most cases 15%, and often higher. (A few countries got a 10% rate.) That’s better than the original tariff rates that Trump had imposed on what he called Liberation Day back in April. But they still represent a massive hike in import costs from last year.
To be sure, nothing we saw this week says that the economy is headed for disaster. But, at the very least, this week’s numbers make it very hard to be bullish (except, of course, about Big Tech). The U.S. is stuck in neutral, and neither the Trump administration nor the Federal Reserve is doing much to get it back in gear.
