U.S. Recession and Economy Update, July 5 2025

Despite the fear of recession from President Trump's tariff policies, the U.S. economy continues to grow, although there are some signs of a slowdown in that growth. In today's video, we're going to look at the latest economic data to assess the current health of the U.S. economy. Let's get into it. Welcome to Real Estate Watch, the channel that focuses on forward-looking real estate analysis. My name is Eric, professional economist and licensed real estate agent. The housing market doesn't operate in a vacuum, and what happens in the broader economy can have impacts on supply and demand for housing, so I like to keep an eye on it. The most recent data we got on the economy is the June jobs report. According to the Bureau of Labor Statistics, non-farm payroll employment in June increased by 147,000 jobs on a seasonally adjusted basis, which was a slight improvement over the 140,000 jobs added in May. With this June data, we now have labor market data on all three months of the second quarter, and overall job growth did improve over the first quarter. It's pretty hard to be in the middle of a recession when the labor market continues to grow. But job growth can be seen as a lagging indicator of economic health, so let's look at some more direct indicators. Consumer spending is a crucial part of the U.S. economy, given that it makes up more than two-thirds of GDP. We now have two months of consumer spending data for the second quarter, and there's some good news and some bad news to report. In May, personal consumption expenditures decreased by 0.3 percent from April. That's the bad news. It wasn't a big drop, but lower consumer spending numbers are never good for an economy that relies on the consumer for two-thirds of its output. I took a look at the consumer spending for each category, and most of the decline from April to May can be attributed to a decrease in spending on motor vehicles and parts. We've seen a lot of movement in this category the last few months, likely due to uncertainty around President Trump's tariff policies, and the May spending level actually isn't that bad and is in line with the trend over the last year or so when we ignore the recent volatility. The good news in the latest consumer spending data is that we are still on track for positive growth for the second quarter overall, as long as there isn't considerable weakness in the June data. Given that job growth was positive in June, it is unlikely that spending would decline significantly for that month. Looking at April and May together and calculating the three-month annualized change, which gives a good sense of where things are shaping up for the quarterly growth, consumer spending for the first two months of the second quarter is up 2.4 percent from the first two months of the first quarter, which is a drastic improvement over the 0.5 percent growth in the first quarter overall. Let's turn now to see how Trump's tariff policy so far may be affecting the economy. Exports in April increased a bit, but the big story is on the import side. Imports plummeted in April as many companies put off orders due to the announcement of President Trump's Liberation Day tariffs. Those tariffs were later delayed, but a result of the announcement is that it put a big dent in the amount of imports coming in. As a result, the trade deficit shrank to its smallest level since September 2023. It remains to be seen what the trade situation will be like in the May and June data, but the April numbers will give a good boost to second quarter GDP as imports act as a negative in the GDP calculation. But the flip side of the lower level of imports is that it may be contributing to lower levels of domestic manufacturing, as some of those imports that usually would have come in but didn't may have been inputs in some manufacturing processes. Total industrial production has been weak in the second quarter, although still growing. The average three-month annualized change for April and May came in at 0.9 percent. In contrast, first quarter growth was 4.6 percent on an annualized basis, so there does seem to be some signs that domestic manufacturing has slowed. Another big swing item in the GDP calculations is what happens with business inventories. The average three-month annualized change for manufacturing inventories in April and May was 1.5 percent, down from 2.2 percent in the first quarter. Retail inventories were down 0.8 percent over the same time period, the same as in the first quarter. Wholesale inventories were up 2.2 percent for April and May, which was down for the 3.3 percent in the first quarter. Add them all up and manufacturing, wholesale, and retail inventories increased by an annualized 1 percent for April and May compared to the first two months of the first quarter, which was down from the 1.5 percent annualized growth in the first quarter overall. Now, the way the government brings inventories into the calculations for GDP is that they look at the change in level from quarter to quarter. If you have one quarter that grew but grew by less than the prior quarter, it ends up being a negative in the GDP calculation. So we may see a negative contribution to GDP growth from inventories in the second quarter, as the early signs suggest inventories grew slower than in the first quarter. But taking everything into consideration, we are likely to see positive growth for real GDP in the second quarter. The Federal Reserves of Atlanta's GDP Now model, as of July 3rd, is projecting 2.6 percent annualized growth for the second quarter, which is a big improvement over the negative growth we saw in the first quarter when imports surged ahead of the expected tariffs. That's where things stand for the U.S. economy right now. There does seem to be signs of a slowdown in certain sectors, but overall growth is positive and there are no signs of an imminent recession on the way. Now, this isn't to say that there aren't people going through hard economic times right now. Everyone experiences the economy differently depending on their personal circumstances. But in the aggregate, we're still doing okay. I'll continue to keep an eye on all the latest economic data, so if you want to stay up to date on the latest economic developments for the U.S., make sure you are subscribed to this channel and hit that notification bell down below so you know right away when my next video comes out. And if you found today's video useful, or at least mildly entertaining, go ahead and hit that like button down below to support the channel and help it grow. Thanks for stopping by. I'll see you in the next video.