Weekly Economic Update: August 6, 2025

Here we go again?

There was a lot going on last week, from the Federal Reserve meeting and July jobs (more in the section below) to tariff deadlines, earnings and the initial second-quarter gross domestic product (GDP) report.

The week started off well enough, with markets notching new highs on Monday before sliding the rest of the week as traders began fretting over the looming Aug. 1 tariff deadline.¹ Countries that don’t have a deal with the administration or aren’t actively in talks to make a deal were scheduled to have tariffs raised to “Liberation Day” levels initially announced back in April.

Markets predictably sold off, but it doesn’t seem like this is the start of a new wave of selling. It also doesn’t seem like the TACO (Trump Always Chickens Out) trade will play out this time; instead, it seems President Donald Trump will go forward and implement tariffs on countries without a deal.² Things are a little different than they were in April, and today we actually have deals with the European Union, United Kingdom, South Korea, Vietnam, Philippines and Japan. Plus, we’re very much engaged with China. The only meaningful countries that aren’t playing ball are India, Mexico (which secured a 90-day extension at the last minute) and Canada.³ Our impact on Mexico and Canada’s GDP is very large, and those countries would suffer significantly if these elevated tariffs remain in place. We look for both Canada and Mexico to come to a deal soon.

So far, the administration says it has picked up $150 billion in tariff revenue and is pledging those funds toward paying down the deficit.⁴ That seems to be a good thing, unless future administrations decide to spend those funds on other line items.

Meanwhile, all the hubbub about tariffs tanking the economy hasn’t panned out, as the economy appears to be back to normal. That’s not to say it’s in great shape; the deficit, excessive government spending and interest rates are all taking their toll. But GDP expanded by 3% in the second quarter, confirming the contraction we saw in the first quarter was an anomaly resulting from people trying to front-run tariffs.⁵ Once things settled down, the economy went back to where it was before, albeit showing signs of slowing.

Markets have been optimistic and biased to the upside as we reached deals with major trading partners and passed the One Big Beautiful Bill (OBB). Earnings have also been decent. Now we need the Fed to come through and for Mexico, Canada and China to agree to deals. August to October has historically been a volatile stretch for markets, but for now we don’t see a repeat of April on the horizon.⁶

Powell digs in as data softens

If something knocks things for a loop in the next few months, it just might be the Fed. Although President Trump has (unconstructively) berated Fed Chair Jerome Powell over his unwillingness to cut rates, Powell seems to have painted himself into a corner. Trump even tried to push Powell toward cutting rates by visiting the site of the new Fed, hoping to guilt Powell by highlighting the renovation’s cost overruns.⁷

Powell didn’t seem to fall for it, but he may be too far gone to redeem himself. If he cuts rates (which he should), he will be viewed as caving in to Trump by some factions. But if he keeps rates where they are, he will hurt the economy and solidify his Trump nickname of “Too Late Powell.”⁸ Remember, Powell was the guy who was on board with inflation being “transitory,” then waited too long to raise rates. He also gave us a jumbo cut ahead of the election when inflation was where it is now, which led to calls of the Fed playing politics. He’s now digging in as the inflation rate is coming down, the economy is slowing, and job growth is flagging.

Speaking of jobs, new job creation came in at +73,000 vs. estimates of +110,000 in July, down from +147,000 last month.⁹ The ADP employment report on Wednesday beat consensus (+104,000 vs. +75,000).¹⁰ Still, +75,000 or +100,000 is getting weaker, and with GDP averaging a +1.25% annual rate in the first half of the year, it’s time for some stimulation.¹¹ Mr. Powell shouldn’t let his feelings get in the way of doing the right thing, which right now would be the time to lower rates.

Coming this week

• This week will be quiet, with factory orders on Monday, trade deficit numbers on Tuesday and MBA mortgage applications on Wednesday.
• Weekly unemployment claims will be worth watching on Thursday, as Powell says that’s what he’s looking at for a rate-cut decision.¹²
• We’ll hear from lots of Fed speakers this week following the Fed meeting, but honestly, it’s all about Powell right now. We need to see what he says at Jackson Hole later this month. The odds are calling for an 89% chance of a 25-basis-point cut in September after the woeful employment number last week.¹³
• Second-quarter earnings are going strong, and things are looking OK so far.¹⁴ As of July 25, 34% of S&P 500 companies had reported results, with 82% reporting positive earnings per share (EPS) and 79% reporting positive revenue. Earnings growth for second quarter is 10.3%, down from 13.4% in the first quarter. If 10.3% is the actual growth rate for the quarter, it will mark the third consecutive quarter of double-digit growth for the S&P 500.
• For the current quarter, 30 S&P 500 companies have issued negative earnings per share guidance, and 27 companies have issued positive. When you consider that well over 300 companies have reported earnings so far and only 57 have given guidance, that’s pretty startling. Valuation is grinding higher for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 22.4 vs. 20.5 last quarter. This P/E ratio is much higher than the five-year average (19.9) and the 10-year average (18.4). That’s getting expensive.

Sources:

¹ Stephen Wisnefski. Investopedia. July 28, 2025. “Markets News, July 28, 2025: S&P 500, Nasdaq Close at New Highs as Investors Await More Trade News, Brace for Big Tech Earnings, Fed Decision This Week.” https://www.investopedia.com/dow-jones-today-07282025-11779938. Accessed Aug. 3, 2025.

² Elisabeth Buchwald. CNN. July 31, 2025. “Trump just revealed his new tariff plan. Here’s what you need to know.” https://www.cnn.com/2025/07/31/business/tariffs-trade-trump-deadline. Accessed Aug. 3, 2025.

³ Aimee Picchi. CBS News. July 31, 2025. “Trump says he’s extended the tariff deadline for Mexico by 90 days.” https://www.cbsnews.com/news/trump-tariff-mexico-deadline-extended-90-days-august-1/. Accessed Aug. 3, 2025.

⁴ Scott Horsley. NPR. June 4, 2025. “Trump’s tariffs could cut deficit by $2.8 trillion over next decade — with caveats.” https://www.npr.org/2025/06/04/nx-s1-5423652/trump-tariffs-cbo-deficits-house-budget-bill. Accessed Aug. 3, 2025.

⁵ Bureau of Economic Analysis. July 30, 2025. “Gross Domestic Product, 2^nd Quarter 2025 (Advance Estimate).” https://www.bea.gov/news/2025/gross-domestic-product-2nd-quarter-2025-advance-estimate. Accessed Aug. 3, 2025.

⁶ Michael Sacchitello. Investopedia. July 30, 2025. “The Stock Market May Be Entering a ‘Turbulent’ Phase. Are You Prepared for a Volatile Shift?” https://www.investopedia.com/the-stock-market-may-be-entering-a-turbulent-phase-are-you-prepared-for-a-volatile-shift-11782045. Accessed Aug. 3, 2025.

⁷ Rafael Nam. NPR. July 25, 2025. “Trump visits Federal Reserve and tussles with Jerome Powell in extraordinary moment.” https://www.npr.org/2025/07/24/nx-s1-5478922/trump-federal-reserve-renovation-jerome-powell. Accessed Aug. 3, 2025.

⁸ Eric Revell. Fox Business. Aug. 1, 2025. “Trump slams Powell as ‘moron’ and calls for Fed’s board to take control of policy moves.” https://www.foxbusiness.com/politics/trump-slams-powell-moron-calls-feds-board-take-control-policy-moves. Accessed Aug. 3, 2025.

⁹ U.S. Bureau of Labor Statistics. Aug. 1, 2025. “Employment Situation Summary.” https://www.bls.gov/news.release/empsit.nr0.htm. Accessed Aug. 3, 2025.

¹⁰ ADP Research. July 2025. “ADP® National Employment Report.” https://adpemploymentreport.com/. Accessed Aug. 3, 2025.

¹¹ Bureau of Economic Analysis. July 30, 2025. “Gross Domestic Product.” https://www.bea.gov/data/gdp/gross-domestic-product. Accessed Aug. 3, 2025.

¹² Jed Graham. Investor’s Business Daily. July 30, 2025. “Fed Rate-Cut Odds Slide on Powell Framework; S&P 500 Slips.” https://www.investors.com/news/economy/federal-reserve-meeting-fed-chair-powell-gdp-jobs-data-sp-500/. Accessed Aug. 3, 2025.

¹³ CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Aug. 3, 2025.

¹⁴ John Butters. FactSet. Aug. 1, 2025. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_080125.pdf. Accessed Aug. 3, 2025.

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