Economic Update: Week of July 7, 2025

Growth

The U.S. economy slowed more than expected in 1Q, with real GDP dropping 0.5% annualized after final revisions. Consumer spending rose just 0.5%, with goods up 0.1% and services up 0.6%. Private investment surged 23.8% due to inventory spikes before tariffs, while government spending fell -0.6% due to reduced federal spending. Net exports dragged growth by 4.6% due to a 37.9% import increase. Looking through tariff-related distortions to trade, economic momentum may have been weaker than expected heading into 2Q.

Jobs

The June Jobs report came in stronger than expected, but some of the underlying details looked soft. The U.S. economy added 147k payroll jobs while upward revisions added 16k jobs to the prior two months. However, private payroll growth slowed to 74k, and more than half of this month’s gains came from state and local governments. The unemployment rate ticked lower to 4.1%, although this was largely driven by a 130k fall in the labor force. Elsewhere, average hourly earnings rose 0.2% m/m and 3.7% y/y, showing little risk of wage inflation. This report confirms our view that the economy and labor market are gradually softening, but not too dramatically. This should keep the Federal Reserve on pause at its July meeting.

Profits

The 1Q25 earnings season has come to a close with a projected pro forma EPS of $63.45. This estimate would represent y/y growth of 12.4% and q/q growth of -3.5%. Looking at the three main sources of EPS growth, sales, margins and shares are expected to contribute 5.1, 8.4 and -1.1 percentage points, respectively, to y/y growth. 77% of companies have beaten estimates, and earnings have come in 10.0% above consensus, driven by strong beats from the Mag 7. While results have been solid, management teams are concerned about tariffs and discussing plans for cost cutting and price increases.

Inflation

• The May CPI report came in slightly cooler than expected, with headline and core CPI both rising 0.1% m/m (2.4% and 2.8% y/y, respectively). Surprisingly, core goods prices were flat, with tariffs not yet impacting the data broadly, but they are beginning to impact specific products, such as medical equipment, appliances and prescription drug prices. Within services, softening consumer demand seems to be showing up, with airfares and hotel prices falling, and shelter prices cooling to 0.3% m/m. On the other hand, headline and core PCE came in a bit hotter than expected, rising 2.3% and 2.7% y/y, respectively. Looking ahead, tariff impacts could intensify in the months ahead, with CPI potentially bouncing to 3.5-4% by year-end.

Rates

At its June meeting, the Federal Reserve unanimously voted to hold the federal funds rate steady at a range of 4.25% to 4.5%. Changes to the statement language were modestly dovish, with new language noting that, while still elevated, uncertainty about the economic outlook has diminished. With the no change in rates largely expected, all eyes were on the Committee’s updated summary of economic projections and dot plot for clues on how government policy could affect the path forward. Revisions were stagflationary in nature, with the Committee revising down its growth forecast for 2025, but revising its forecasts for inflation and the unemployment rate higher. The revised dot plot continued to show two rate cuts for 2025 but just one for 2026. In our view, higher inflation due to tariffs could allow the Fed to cut rates just once this year.

Risks

• Tariffs could challenge economic growth while putting upward pressure on inflation.
• Market volatility will likely remain elevated until policy uncertainty turns to policy clarity.
• Slowing economic growth could weigh on earnings and forward guidance.

Investment Themes

• Fixed income offers attractive levels of income and protection against an economic downturn.
• The ongoing equity market rotation should present opportunities in sectors outside of tech.
• Higher government spending in Europe and China should support better international performance.

This weekly update provides a snapshot of changes in the economy and markets and their implications for investors.

—

Originally Posted July 7, 2025 – Economic Update

The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions.

The J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

Telephone calls and electronic communications may be monitored and/or recorded.

Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://www.jpmorgan.com/privacy.

This communication is issued in the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission.

If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

Copyright 2025 JPMorgan Chase & Co. All rights reserved.