After a weak jobs report, here's where the economy stands

USA Today

3 days ago

We learned a lot about the U.S. economy during the past week, but what we learned may leave us asking more questions. Consider a few of the most telling numbers:
The encouraging news
◾ GDP grew 3%: The economy rebounded in Q2 after a -0.5% drop in Q1. The first quarter decline was driven by companies rushing to import goods ahead of new tariffs from President Donald Trump. Imports are subtracted from U.S. growth.
◾ Consumers are happier: Both consumer confidence and sentiment continued to climb in July, recovering from their April lows. Consumer spending is the largest part of the U.S. economy.
The less encouraging news
◾ Inflation is rising: The Fed's preferred inflation gauge — the personal consumption expenditures (PCE) index — rose 0.3% from May. Economists say the increase may be one of the early signs that tariffs are starting to push up prices.
◾ Job revisions surprise: July's job gains came in at 73,000 — well below the expected 102,000. More concerning, however, were downward revisions to April and May's numbers, suggesting the labor market may be weaker than previously thought.
Jobs fallout: Trump fires head of labor statistics bureau after weak jobs report
One thing that didn't change this week: The Federal Reserve's stance on interest rates. Chair Jerome Powell and the policymaking committee kept the short-term rate range steady at 4.25% to 4.5%. But, that range may not hold for long.
"The weak July jobs report increases pressure on the Fed to cut rates later this year," said Bill Adams, Comerica Bank chief economist. "The decision isn't a slam dunk, since labor supply also fell in July" because the number of foreign-born workers declined.
Interest rate traders appear more confident that a rate cut is coming. Their latest bets suggest a 90% chance the Fed will lower rates in September — a sharp jump from the 45% percent chance shortly after the Fed's meeting on Wednesday.
Will the Fed cut interest rates?
Unable to view our graphics? Click here to view them.
How is the U.S. economy doing?
What is the U.S. unemployment rate?
U.S. unemployment rate rose to 4.2% in July. The monthly number represents the percentage of people who are unemployed and looking for work.
What the data shows: The unemployment rate has been relatively steady for the past year, hovering around the 10-year monthly median rate of 4.1%. Economists such as Nancy Vanden Houten at Oxford Economics have speculated that corporate decision makers have been stymied by the uncertainty surrounding tariffs: "The June (Job Openings and Labor Turnover Survey) painted a familiar picture of the labor market: Hiring remains quite low, but so do layoffs."
Hiring had held stead throughout the year – although it was well below the 10-year median rate of 226,000 jobs per month. Analysts expected Friday's jobs report would show the economy added about 100,002 jobs in July. Stock prices and bond yields fell following the disappointing report.
How big is the U.S. economy?
The U.S. economy produced about $30 trillion of goods on an inflation-adjusted annualized basis in the first quarter, but real GDP, the value of goods adjusted for inflation, fell 0.5% in the quarter because imported goods – which subtract from GDP – jumped more than 50%.
What the data shows: The Bureau of Labor Statisics report Wednesday morning showed the economy grew 3% in the second quarter – significantly higher than the 2.3% increase analysts expected. Much of the "growth" came from reduced spending on imports.
How high is inflation?
Inflation, a sustained increase in prices throughout the economy, touched its 10-year median of 2.3% in April – the first time since pandemic spending set off 40-year high inflation. The Fed policymakers say they prefer inflation at 2%, or "low and stable," so we can "make sound decisions regarding saving, borrowing, and investment."
What the data shows: Inflation has fallen significantly but remains above the 2% that the Fed targets. The annual inflation rate as measured by the consumer price index rose to 2.7% in June from 2.4% in May. The July CPI report will be released Aug. 12.
Are consumers still making purchases?
U.S. consumers account for $7 of every $10 spent in the U.S. economy. Retail sales' median monthly increase has been about 0.4% for the past 10 years. That doesn't sound like much until you consider a 0.6% increase in June amounted to an extra $4.6 billion of spending.
What the data shows: As the primary engine of the U.S. economy, we bought $720 billion worth of stuff on a seasonally adjusted basis in June. That was a big swing from the -0.9% decline in May. We'll find out Aug. 15 if we continued to spend in July.
Gas prices are holding steady
Our gasoline purchases aren't a large part of most of our budgets, but it's hard to miss the big numbers outside every station and not have some emotional reaction to their swings. That can have a psychological impact on our spending. One report showed a recent improvement in consumer sentiment closely correlated with lower gas prices.
What the data shows: We're in the midst of the summer driving season where gasoline prices typically peak, but a gallon of regular gas has held steady throughout the summer and several cents below last year's prices.
So how confident are U.S. consumers now?
The University of Michigan measures U.S. consumer sentiment on a monthly basis. The index been as high as 101 ahead of the pandemic in February 2020 and as low as 50 when inflation peaked at 9.1% in June 2022.
What the data shows: Consumer sentiment has been rising haltingly since bottomed out in May.
Current mortgage rates still elevated
While the Fed's interest-rate decisions don't directly affect mortgage rates, they do ripple through the economy and have made the math more difficult for homebuyers.
What the data shows: Since November, mortgage rates have moved in a relatively narrow range – between 6.6% and 7% – and well above the 10-year median, according to Freddie Mac's weekly mortgage rate survey. Rates are down significantly from the November 2023 peak of 7.8%.
Higher mortgage rates weigh on home sales
Existing home sales are the lion's share of homes sold each month. The NAR reports each month's sales at a seasonally adjusted annual rate. Annual home sales peaked in 2005 at 7.08 million units. In September 2024, that number fell to 3.9 million units – lower than sales during any year following the financial crisis.
What the data shows: Not surprisingly as mortgage rates have risen, existing home sales have tumbled. At the same time, average home prices are also rising because fewer homes are on the market. Speculation has been that homeowners are unwilling to sell and give up their low-rate mortgages.
So how are investors looking at this information?
The nation's stock markets are not the economy, but their movements reflect the combined bets investors are making on the economy. Investors have a keen eye on data points like in the charts above. Significant swings in our spending, or even our thinking, might potentially impact corporate profits in coming quarters.
What the data shows: After a dip in early April because of tariff-related uncertainty, the S&P 500 has steadily climbed, reaching several new highs since June. The upward trend could suggest that investors are increasingly confident the final tariff agreements won't weigh on the economy as heavily as once feared, but following the employment report Friday all three major U.S. index fell more than 1%. The tech-heavy Nasdaq Composite fell 2.2%.
Contributing: Bailey Schulz