Economic Updates for July 2025

Atlanta FED GDPNow estimate for Q2 2025 is now tempered back to around 2% from a high of 4+% last month.

The LEI has been bouncing over the recession line a few times. It is interesting to see it has fallen below the line currently. Does this mean we are headed into a recession?

After a steep decline over the last few months, USD has found a floor and seems to be reverting back.

Commodity prices have been range bound for the last few years. Oil price remains contained against any supply/demand pressures.

Gold has been marching higher steadily.

BitCoin continues to behave like a risk asset. Recently, the passing of the Genius Act is being touted as ChatGPT moment for crypto.

The core CPI reading is likely to trend lower as the shelter component fades out. The overall CPI reading for the month of June 2025 was 0.3%.

PPI remains unchanged in June 2025.

This is the headline inflation number that everyone talks about. For June 2025 we are at 2.7%.

CPI Components Last Month Source BLS.gov Consumer Price Index

CPI Components This Month
The contributors to the inflation have been mainly food and transportation. Energy prices has been more steady over the last month. (Please note that the y-axis in both the graphs have different scales).

This survey data shows that inflation one year from now is expected to be 6.5%. Most likely, there is some overestimation on the part of the survey takers to account for tariff related price hikes.

University of Michigan's consumer sentiment has continuously declined every month of this year except for a rebound since last month. For July, the reading is at 61.8. Certainly, the consumers seem to be enjoying the reprieve in tariffs.

The AAII sentiment has been rebounding from a bearish stance a couple of months ago.

After turning positive earlier this year, Manufacturing PMI has turned negative for the last three months; the latest reading is 49 this month.

ISM non-manufacturing number jumped back up from a brief dip below 50. The reading is 50.8 this month.

Industrial Production has remained positive through the last year and is showing an uptick in activity.

Retail Sales is at 0.6% this month.

Non-farm payrolls remain robust indicating economy is still adding jobs. This month the jobs number came in at 147k jobs.

Total Vehicle sales dipped significantly, perhaps the lull after a pull forward in demand due to expectations of tariffs.

Used car prices have seen a sharpe increase in the last month. This could be another impact of tariffs as the supply chain of car manufacturing gets gummed up, more consumers are turning to used cars instead of new ones.

New home sales have been moderately trending higher even with high mortgage rates.

The mortgage rates have followed the 10-year Treasury yield higher over the last few weeks.

The unemployment rate has remained low. This indicator is a lagging indicator. We do expect to see this number creep up if recession becomes imminent. This month, it dipped a bit to 4.1%.

This chart will be the first indicator of a telltale sign that unemployment is increasing. As you see the continuing jobless claims number rise, it implies the people who lost their jobs are not going back to labor force fast enough and the unemployment rate is starting to creep higher. Over the last couple of weeks, it has remained roughly flat.

The yield curve is staying normal - 10 year constant maturity minus 2 year constant maturity is about 0.52%.

Yield curve - Then

Yield curve - Now
The yield curve is certainly reverted back to normal. Over the last few weeks, the long end of the rates have edged higher. The FED is likely to keep the short term rates where there are for some more time until the tariff uncertainties are behind us.

Over the last month, the technology stocks have climbed back up to challenge the lead of Industrials and Utilities.

If the economy were to enter a recession, it is likely that some of the companies will struggle to keep up with their debt payments causing their credit spread to widen. This indicator shows how the credit spreads have been behaving well so far even in the face of the Yen carry trade unwind.

The spread is 2.8% currently and sharply rolled over since the April market correction.

A spike in put / call ratio indicates that investors are very apprehensive about a sudden fall in the equity markets. The last spike seen is in late June when US dropped missiles in Iranian nuclear facilities.

The current earnings forecast by equity analysts estimate the earnings potential for S&P 500 companies to be around $282 which translates to a price to earnings ratio of 22.1 at the current S&P 500 price level. This is above the 5 year and the 10 year averages. Earnings season for Q2 is earnestly underway and we are looking to see how USD decline and tariffs affect the earnings growth.

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