{"id":229097,"date":"2025-08-18T09:45:00","date_gmt":"2025-08-18T13:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=229097"},"modified":"2025-08-19T06:02:36","modified_gmt":"2025-08-19T10:02:36","slug":"economic-update-week-of-august-18-2025","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-week-of-august-18-2025\/","title":{"rendered":"Economic Update: Week of August 18, 2025"},"content":{"rendered":"\n

Growth<\/h2>\n\n\n\n

The U.S. economy grew 3.0% annualized in 2Q25, although trade distortions continued to mask underlying softness. Consumer spending rose a tepid 1.4%, while business fixed investment and government spending rose just 0.4%. The housing market remained challenged as residential fixed investment fell 4.6%. Turning to the more volatile components, inventories fell, removing 3.2%pts from GDP growth, while a sharp decline in imports caused net exports to boost growth by 5%pts. Excluding these volatile components and government spending, real final sales to private domestic purchasers rose just 1.5% annualized in 1H25 vs. 3.1% in 2H24. All to say, policy uncertainty weighed on economic momentum in 1H25.<\/p>\n\n\n\n

Jobs<\/h2>\n\n\n\n

The July Jobs report came in much weaker than expected, with sharp downward revisions reminding us that first estimates should be taken with a grain of salt. Nonfarm payrolls rose by 73k (cons. 104k). Moreover, revisions removed 258k jobs from the prior two months, the largest downward revision since 1979 outside of the pandemic. Private payroll employment growth (+83k) slowed but remained dominated by services. The unemployment rate rose 13bps to 4.24% despite a decline in the labor force, while wages rose 0.3% m\/m and 3.9% y\/y. This weak report strengthened the case for a September rate cut, but if unemployment remains stable in August, the Fed may opt to hold rates steady as it deals with tariff-induced price pressures.<\/p>\n\n\n\n

Profits<\/h2>\n\n\n\n

With 84% of market cap reporting, the second quarter earnings season is drawing to a close. Consensus is projecting 2Q25 EPS of $66.12. If realized, this estimate would represent y\/y growth of 10.4% and q\/q growth of 3.4%. Looking at the three main sources of EPS growth, sales, margins and shares are expected to contribute 6.1, 5.1 and -0.8 percentage points, respectively, to y\/y growth. So far, 81% of companies have beaten estimates, and earnings have come in 8.8% above consensus. While we’re not seeing the impact of tariffs yet, management teams are thinking through supply chains, price increases, capex and hiring plans. Tech earnings will be especially important this quarter, as the Mag 7 are expected to contribute 52% of the y\/y earnings growth.<\/p>\n\n\n\n

NEW THIS WEEK<\/p>\n\n\n\n

Inflation<\/h2>\n\n\n\n

The July CPI report was little changed from last month, with headline and core CPI rising 0.2% and 0.3% m\/m, respectively (2.7% and 3.1% y\/y). Tariffs have had mixed impacts so far but are beginning to drive core goods prices higher (3-month annualized run-rate accelerated to 1.5% from 0.9% in June). There were also significant increases in categories like airfares, dental services, and used autos, which were driven by other factors. There are likely more consumer price increases to be seen with headline PPI rising a hot 0.9% m\/m in July.<\/p>\n\n\n\n

Rates<\/h2>\n\n\n\n

At its July meeting, the Federal Reserve voted to hold the federal funds rate steady at a range of 4.25% to 4.5%, but the decision was not unanimous. For the first time in over 30 years, two members dissented, voting to cut rates by 25bps. During the press conference, Powell’s comments leaned hawkish. He described the labor market as in balance, citing the low unemployment rate as a key measure to watch. He also noted that inflation remains above target, even excluding tariff impacts. Neither of these statements signals that the Fed is ready to continue easing policy just yet. However, if the August Jobs report were to show a further rise in the unemployment rate, a September rate cut would look more likely.<\/p>\n\n\n\n

Risks<\/h2>\n\n\n\n