The last week of July is a big one for key economic data and policies. From jobs to tariffs, these readings and announcements will impact the wallets of everyday Americans and balance sheets of businesses across the country.
1. Consumer confidence
How are consumers feeling about the state of the economy and their own finances? The Conference Board will release its latest index reading of consumer confidence. June’s reading dipped unexpectedly to 93, below the 98.4 reading in May and well below the 99.8 economists had predicted.
June’s decline was a surprise and was driven by fears of the tariff’s impacts. There has been ample alarm over the tariffs from economists and news outlets. Whether that alarm is driven by genuine fears of increasing prices or to drive fear over the administration’s policies, it has had an impact on the psyche of Americans. Many have been led to think that the economy is on the brink of collapse.
The good news is that it has not happened. Interestingly, Goldman Sachs trimmed its recession forecast in June to 30%. Since then, the U.S. has inked deals with the European Union, Japan, and other nations.
We’ll find out whether the June consumer confidence decline was a blip or a trend.
Update: Consumer confidence in July rose to 97.2, up from 93 in June and beating expectations.
2. Economic growth or recession?
Did the economy grow again in Q2 of this year or decline? If it did decline for the second quarter in a row, are we in a recession? These are big questions that will also get answered this week as we receive data on the gross domestic product (GDP), which measures how much our economy is growing (or shrinking).
In Q1, GDP fell -0.2%, driven by an increase in imports. Many retailers and companies rushed to import foreign goods in anticipation of new tariffs raising prices and restricting exports. Imports reduce economic growth.
Consumer spending also fell, as tariff-paralyzed consumers pulled back on their spending, fearing a recession. Consumer spending is critical to our economy. By pulling back on their purchases of goods and services, consumers can actually spur the recession they fear.
As consumer sentiment improves from waning tariff fears and consumers resume their summer spending habits on clothes, trips, and activities, we may see economic growth rise, averting a recession.
Typically, a recession is two consecutive quarters of economic growth. Economics and the media conveniently downplayed or denied this definition during the Biden administration’s inflation-driven downturn. Let’s see if they give President Trump the same grace. It’s doubtful.
Update: GDP grow +3% in Q2 rebounding from -0.2%.
3. Interest rate decision by the Federal Reserve
All eyes will be on the Federal Reserve and its chairman, Jerome Powell, who will decide whether to cut interest rates this week. The next opportunity for the Fed to cut rates won’t be until September. Some predict that the Fed will keep rates steady, yet again.
While much attention has been paid to President Trump’s pressure on Powell to lower rates, there is conflict among economists about whether the Fed should cut rates.
Inflation has come down to as low as 2.3% (now back up to 2.7%) from 3% at the start of the year. Underlying core inflation is still trending down. The Fed is mandated to keep inflation down at about 2%. Also, the labor market is strong. The unemployment rate ticked down to 4.1%, which is near full employment.
Giving consumers financial relief by lowering the federal funds rate would lead to lower interest rates on consumer debt such as credit cards, personal loans, and car loans. People could catch up on paying down the debt rather than continuing to get buried under high interest.
Also, mortgage interest rates tend to go in the same direction as the Fed funds rate. Declining interest rates would hopefully spur sellers into the market to meet ready and willing buyers.
Some economists worry, though, that declining interest rates could fuel inflation. I disagree. The 40-year high inflation rate of 9.1% under the Biden administration was driven by excessive federal spending through stimulus checks and other cash transfers. Loosening credit will be stimulatory, but not at the same level as giving away over $1 trillion in cash to Americans.
4. July jobs report
Friday’s jobs report will be one to watch. The labor market remains solid. Last week, the initial claims data charted its sixth straight week of decline. Initial claims for unemployment benefits fell to their lowest level in two months.
Last month, the unemployment rate fell to 4.1% from 4.2%. This is good news, but there are areas of concern. The two biggest areas of concern are the shrinking labor force and private-sector jobs.
The labor force shrank by 130,000 workers. About half of the unemployment rate is attributable to a smaller labor force.
The other half of the unemployment rate decline is due to growth in government jobs, mostly in state and local education (63,500). Health care and social assistance (58,600) and leisure and hospitality (20,000) were growth areas for private jobs, while manufacturing fell.
Overall, we want the unemployment rate to decline, but not because workers are dropping out of the economy. Government-driven job growth is not a sign of economic growth either.
5. Tariffs
This week closes with the tariffs taking effect. The week began with the announcement that the European Union closed a deal with the Trump Administration. This follows a deal made with Japan last week. These are big deals that signal to the rest of the world that the delays are over and it’s probably better to negotiate now than to hope for another extension. We’ll see how many deals get announced before the full tariffs take effect.
Bottom Line
Consumers are paying some attention to the economy to decide their next moves. Will they ramp up spending for back-to-school and the holiday season, plan trips to see family, or stay home and close their wallets? Do they feel confident enough to leave their jobs in anticipation of finding a new job quickly? These are questions that this week’s data may provide insights into.