Economic Updates for June 2025

Atlanta FED GDPNow estimate for Q2 2025 isclosing in on 4%. After the tariff tantrums, we seem to be back on track. Some analysts think we are yet to see the impact of tariffs which is likely to show up in holiday sales later this year.

The LEI has been bouncing over the recession line a few times. Most recently, it is slightly above the recession line after the tariff tantrums in April.

USD has steadied a bit after the conspicuous fall early in April.

Commodity prices have been range bound for the last few years. The middle east escalation of war has contributed to heightened volatility in this market.

Gold has been marching higher steadily with the 10 year rates climbing.

BitCoin continues to behave like a risk asset. It has shot up to its previous all time high since the deal with China on tariffs.

The core CPI reading is likely to trend lower as the shelter component fades out. The overall CPI reading for the month of May 2025 was 0.2%.

PPI is projected to climb by 0.1% for May 2025.

This is the headline inflation number that everyone talks about. For May 2025 we are at 2.4%.

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. The decline in energy prices have helped tame inflation. (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 this month. For June, the reading is at 60.5. Certainly, the consumers seem to be enjoying the reprieve in tariffs.

The AAII sentiment has been rebounding from a bearish stance a month ago.

After turning positive earlier this year, Manufacturing PMI has turned negative for the last three months; the latest reading is 48.5 this month.

ISM non-manufacturing number is below 50 since a long time ago for the first time. The reading is 49.9 this month.

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

Retail Sales is at -0.9% this month. Very likely this downward correction is due to the lull after the pull forward in demand earlier this year as consumers front ran tariffs for their purchases.

Non-farm payrolls remain robust indicating economy is still adding jobs. This month the jobs number came in at 139k jobs.

Total Vehicle sales are picking up, probably people are buying cars before the tariff pushes the prices higher.

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 remained steady at 4.2%.

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 0.49%.

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.

Since the China deal, the markets have bounced back from the April lows. The old economy is shining this year with utilities and industrials leading while consumer discretionary is lagging.

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 3.1% 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 around April 2nd, liberation day.

The current earnings forecast by equity analysts estimate the earnings potential for S&P 500 companies to be around $280 which translates to a price to earnings ratio of 21.6 at the current S&P 500 price level. This is above the 5 year and the 10 year averages. After the tariff tantrum, we have seen some forward guidance being pull by some S&P 500 firms. However, the earning growth has continued to be positive.