Confused about the economy? You’re not alone

If news about inflation, trade, the Federal Reserve and jobs has you confused and you’re not sure what to make of the US economy, don’t worry: You’re in good company.

But this week offered a ton of information that provided a more focused — if not exactly crystal clear — picture of what’s happening with America’s economy.

We got reports on inflation, gross domestic product, jobs and consumer sentiment, a Fed rate decision and a flurry of trade announcements, all of which removed varying degrees of uncertainty about where the economy has been heading.

If you’re just looking for the tl;dr, here are the big takeaways from this week:

If you crave context and don’t mind a slightly unabridged rundown, here you go:

Trade

Trump’s historic trade agenda was expected to turn the economy on its head. That hasn’t happened — at least, not yet.

The lack of a sudden recession, as many feared, has given investors confidence that they can safely ignore trade — and stocks have risen to all-time highs in recent weeks. It has also given Trump confidence that he can raise tariffs dramatically, as he just did on Friday. Even with a flurry of 11th-hour trade agreements, America’s effective tax rate on imported goods has shot above 18%. It stood at just 1.2% last year. That could add $2,400 in costs for the average American household, according to Yale’s Budget Lab.

The economy has remained surprisingly strong this year, which perhaps shouldn’t have come as such a shock: America is the world’s largest and most complex economy, with a multitude of natural resources.

However, economists warn that tariff effects are just starting to become apparent, and they could escalate in the second half of 2025.

Inflation

Tariffs left a bigger mark on goods prices in June, which in turn put upward pressure on overall inflation. The Personal Consumption Expenditures price index, a mouthful best known as the Fed’s favored inflation gauge, showed that prices rose 0.3% in June from May, boosting the annual rate of inflation to 2.6% from 2.4%.

That 2.6% is the highest rate in four months and marks a step in the wrong direction from what the Fed wants to see, which is inflation at 2%. And that 0.3% monthly hike, if continued, would drive that annual rate well north of 3%.

The PCE price index painted a similar picture to the June Consumer Price Index and Producer Price Index: More businesses were seeing higher costs because of tariffs and passing some of those on to consumers.

And while the expansive and expensive tariffs aren’t expected to trigger an inflationary surge like we saw in 2022, annual inflation is expected to bounce back above 3%. But as we learned and felt coming down from that recent inflation high, when price levels rise for a broad suite of commonly purchased items, it takes a big bite out of Americans’ hard-earned pay.

Jobs

Economists expected that job growth would slow in July. After all, uncertainty has stifled businesses’ hiring plans for several months running now. Plus, job gains are becoming increasingly concentrated in a select few industries: health care, education and (especially during the summer) leisure and hospitality businesses.

But hiring was significantly slower in July than expected. And May and June were also revised down sharply, suggesting that the job market may be considerably worse than we had previously expected.

Through July, the US has added an average of just 85,000 jobs per month. That’s pretty weak and slightly below the breakeven employment level, in which the jobs added are enough to keep up with labor force growth and hold the unemployment rate steady.

Outside of the pandemic recession in 2020, that current pace is the weakest January-to-July average since 2010, when the US economy was licking its wounds from the Great Recession.

Consumers

Some tariff-sensitive goods — think: washers, dryers, furniture, clothes, shoes, toys, sporting goods and curtains (window and floor covering prices surged by a record 4.2% in June) — are on the rise, but consumers are generally holding up okay.

A slice of the population has benefited from stock market gains, as potential tariff rates come into better focus and boost investors’ confidence. The broader populace is still seeing pay gains outpace inflation (although to a lesser extent than recent years).

The Thursday report that contained the Fed’s favorite inflation gauge also provided the most comprehensive look at how US households’ income, savings and spending are faring.

Consumers spent more in June than they did in May, with expenditures rising 0.3% from the month before (0.1% when adjusting for inflation). Those are modest gains, but they are still gains.

“Consumers are in a position to handle this, though consumer psychology is a fickle thing,” Gus Faucher, chief economist for the PNC Financial Services Company, told CNN Thursday. “The (spending and inflation data) does not suggest that a recession is imminent. But I think what it does suggest is that we’re starting to see some cracks; and, if there is something else that goes wrong, then the economy is vulnerable to a downturn.”

The Fed

Presidential excoriations (and back slaps) aside, Federal Reserve Chair Jerome Powell and the rest of the Fed have their work cut out for them. At the conclusion of a two-day policy meeting Wednesday, Powell — a target of Trump’s ire because the Fed has kept interest rates high — kept interest rates high again.

Powell’s rationale: The economy is strong enough to support higher interest rates. And it’s not yet clear whether tariffs will raise prices a bit or a lot. Keeping interest rates steady could help to keep inflation in check.

Trump and his economic advisers have claimed that the Fed’s high rates are hurting Americans’ ability to get a mortgage. The Fed’s rates may influence consumer loan rates — but it doesn’t set them. That’s the bond market, and Trump’s massively expensive domestic policy agenda, his tariffs and even his constant blasting of Powell have made bonds relatively unattractive to investors.

Because yields and prices trade in opposite direction, Trump has his own share of blame for high mortgage rates. But Trump may get what he wants in September: Expectations for a Fed rate cut shot higher Friday after a weaker-than-expected jobs report.

GDP

This week, we got our first glimpse at America’s second-quarter gross domestic product, the broadest measure of the US economy. And economists are still trying to figure out what it means.

The headline number looked strong: A 3% annualized growth rate is good by anyone’s measure. Consumer spending, the backbone of America’s economy, picked up. And, most importantly, America’s economy is growing again, after shrinking in the first quarter.

But when you peer more closely into the data, it becomes apparent that tariffs are masking a hidden weakness in the US economy.

Importers scrambled to stockpile a ton of goods before tariffs went into effect in the first quarter, widening America’s trade imbalance to historic levels and making the economy appear much worse off than it actually was.

In the second quarter, as tariffs took effect, imports plunged and companies sold off their inventories. That narrowed the trade gap, making the economy look better off than it actually was.

So what’s actually happening? Something in between: America’s economy remained strong but slowing in the first half of this year. Consumer spending may have bounced back, but it remained weak — and businesses are growing cautious.

The big picture

The blizzard of economic data and activity this week largely came in line with expectations, with the major exception of jobs. The overall picture may give some reassurance that the economy is doing mostly okay (accompanied by some caveats or asterisks).

But the jobs and trade data is worrying.

“The events and data of this week paint a picture of an economy that is slowing and will continue to slow through the back half of the year,” Gregory Daco, chief economist at EY-Parthenon, told CNN in an interview Friday.

And while Daco believes that a recession is not necessarily imminent, Thursday night’s trade blitz and Friday’s jobs report raise those odds.

“This type of very weak job growth momentum is essentially eroding the economy’s bugger against headwinds,” he said. “And and in an environment where the US economy is subject to historic supply shocks, that will essentially expose it to the risk of a of a recession.”