Recession Coming?
In March of this year when President Trump announced the upcoming tariffs, the media made some dire predictions. Here’s a quick summary: The common thought was that the US would be in a trade war with our trading partners, the immigration policies would be hurting the jobs market, and we would be in the beginning of a recession by August. Looking at recent data though, the odds of a recession occurring in 2025 have dropped significantly.
Here is the economic data that has recently been released:
- GDP growth is 3%, which is better than the expected 1.2%.
- Inflation went from 2.6% to 2.7% ,and for the year it is annualized around 2.5%, which is above the Federal Reserve’s target of 2%. But overall, the trend has been down for the year.
- In May, the treasury recorded a surplus in tax revenue when more money came in than went out. While May is typically a high revenue month, a treasury surplus hasn’t happened in 8 years. That could be an outlier, and bigger deficits may begin to show up by the end of the year, but with over $300 billion in new revenue from tariffs expected this year, who knows?
- On Friday the July jobs report came out. The US adding 78,000 jobs, which was below the expected 104,000 jobs. The unemployment rate is now at 4.2%.
- Jobs for the previous two months were revised down so significantly that it makes one wonder where the Federal Reserve is getting their jobs data. The Fed chairman this week said he thought the jobs market was stable, yet two days later it looks anything but stable.
Jobs Impact Interest Rates
The biggest takeaway from this data has been the jobs revision numbers. Based on these revisions, the odds of a rate cut in September have jumped up dramatically. This makes the Fed look like they are once again behind the curve. The CME Group has raised the odds of a 25-basis point cut to 81% in September from 38%. There’s a 50/50 chance of a 50-basis point cut.
It does look like predictions that immigration policies would hurt the jobs market numbers were correct. Employment for foreign-born workers is down by over one million jobs in 2025, but native-born workers have gained around 2.5 million jobs during the same time frame. We will have to wait to see how this works out. Also, a large number of Federal government employees have been laid off this year. Though this rate will slow down as the year goes on, it currently adds to the negative impact.
Lower Interest Rates?
If new predictions regarding interest rates are correct, we could see a cumulative 100-basis point cut in rates by the end of the year. This could certainly loosen up the real estate market which has been stuck for much of the year. Current 30-year mortgage rates are around 7%, so a drop into the 5% – 6% range should bring in new buyers and allow current homeowners to feel like they could go ahead and sell.
Other than the jobs market taking a hit this month, the rest of the data seems to point to continued growth through the rest of the year. If there is going to be a recession, it may have to wait until 2026.
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This post is for informational purposes only. It is not intended as investment advice as each person’s financial situation is different. I strongly recommend working with a financial advisor who can deliver current information to you quickly and offer help with sorting through the various investing options. Bret Wilson is a Financial Advisor with Wilson Investment Services, based in Rockwall, Texas.