Economic Outlook - June 2025
- Uncertainty about the Trump Administration’s trade policies dominated the economic backdrop in May. The U.S. Court of International Trade ruled late in the month that President Trump exceeded his authority under the International Emergency Economic Powers Act of 1977. The court also rejected Trump’s authority to declare emergencies at will to justify sweeping tariffs. The court issued a summary judgment, blocking Trump’s “Liberation Day” April 2 tariffs as well as fentanyl-related tariffs on Canada, Mexico, and China. However, in short order, the U.S. Court of Appeals for the Federal Circuit temporarily stayed that ruling. Tariff policy in some form will likely dominate trade negotiations under the current administration.
- The April jobs update was solid. The U.S. Labor Department’s report showed that the U.S. economy added 177,000 jobs, above estimates that called for a 130,000 increase. The unemployment rate held steady at 4.2%, matching expectations.
- Not all recent economic data has been rosy, however. One area of softness is in U.S. manufacturing: The Institute for Supply Management’s U.S. manufacturing index weakened further to 48.7 in April from 49.0 in March. The April reading is a five-month low and the second consecutive print in contraction territory (less than 50). The housing market is also facing some challenges. The National Association of Realtors reported that pending home sales slumped 6% in May, as high mortgage rates continue to hamper demand.
- A key question for markets in 2025 is when and how the debt limit will be addressed. House Republicans have passed a massive bill to enact the heart of President Trump’s domestic agenda. The House bill would raise the nation’s debt limit by around $3.8 trillion over the next 10 years, according to estimates from the Congressional Budget Office. Moody’s cut the U.S. credit rating from Aaa to Aa1, citing risks of widening fiscal deficits.
- The Federal Reserve sees stagflation risks, and Fed chief Jerome Powell is still “in no hurry” to act before the impact from tariffs is clear. However, recent inflation data has been encouraging: The April Personal Consumption Expenditures Price Index was benign, up 2.1% from year-ago levels. When volatile food and energy costs are factored out, the Federal Reserve’s preferred measure of inflation increased 2.5% from a year ago, in line with expectations.
Sources: FactSet, Dow Jones Publishing, Bloomberg, Bureau of Labor Statistics, National Association of Realtors, U.S. Bureau of Economic Analysis, Institute for Supply Management, U.S. Federal Reserve, Congressional Budget Office, Moody’s Ratings
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