But a true assessment of the overall U.S. economy is harder to get. Some indicators point to positive trends: Job numbers are strong, the stock market is near record highs, and inflation remains manageable. The economy seems to have weathered the Trump administration’s tariffs so far, and the recession some insisted was around the corner has yet to materialize. But other signs—like a declining dollar and shrinking GDP—could portend future economic trouble, especially in light of more tariffs.
If Trump’s trade policy does bring on a recession, it’s too soon to see it yet. “What everyone has forgotten is how recessions normally work,” Justin Wolfers, a professor of public policy and economics at the University of Michigan, told TMD. “The idea that a guy gets elected in November, takes power in late January, and we should be looking for things to have gone ‘crack’ by May or June just doesn’t fit with the traditional history of recessions.” So far, the economy has remained relatively steady, alleviating much of the panic from April, when 60 percent of CEOs said a recession was nigh. By June, that number decreased to less than 30 percent.
Despite the climate of uncertainty created by Trump’s volatile trade policy, the economy is in a similar position to where it was a few months ago. “The tariff numbers have changed, but the overall situation is really the same,” Scott Lincicome, the author of our Capitolism newsletter, told TMD. “There are a couple realities that I think everybody loses when they talk about tariffs and the economy and just the U.S. economy generally these days. The first is that the U.S. economy is massive—$30 trillion economy. It is also very dynamic.”
Because the U.S. has a flexible, service-based economy, it can withstand much of the pressure from tariffs. “You put that all together, and there’s simply no reason to expect a Great Depression because of Trump’s tariffs,” Lincicome added. “The other big thing is that tariffs take a while to work their way through the various channels.”
Businesses have been flexible enough to avoid the drastic price increases feared after the announcement of the “Liberation Day” levies earlier this year. But how long companies can stave off price hikes is unclear. In preparation for the trade restrictions, some businesses increased inventory imports and reconfigured supply chains, while others took more creative routes to absorb the tariff costs, like ending free shipping.
A large swath of businesses, though, say they are already taking a direct hit to their profit margin. According to a KPMG survey released Tuesday, 57 percent of companies reported a decrease in their gross margins, with 25 percent reporting drops of more than 6 percent. In what may be the most telling finding, 77 percent of businesses surveyed said they were considering raising prices at least 5 percent in the next six months.
Surveys like these—what economists call “soft data”—have shown that businesses are, as Wolfers put it, “miserable on every measure.” Surveys of executives have shown declines in overall optimism, plans to increase prices, and expectations of declining growth—all bad signs for the economy. Consumer sentiment is down, as well, dropping 18 percent from December 2024, according to Michigan’s Index of Consumer Sentiment. Similar precipitous drops have indicated a coming recession in the past.
But the “hard data” is actually quite positive. American employers added 147,000 jobs in June, significantly higher than economists’ 110,000 estimate, and the unemployment rate fell to 4.1 percent—its lowest level since February. Inflation has remained steady, as well, clocking in at 2.4 percent in May and even posting declines in categories expected to see tariff-related increases, like apparel prices. The stock market—a helpful sign of investor sentiment—continued to rise even as new Trump tariffs were announced. “As much as the soft data looks miserable, the hard data tells a much more optimistic story,” Wolfers said.
So why the disparity? “Surveys are forward-looking, and the hard data are backward-looking, so there’s always a lag,” Lincicome said. “Either, business owners are just lying to the surveyors—I very much doubt that—or, there is going to be some pain on the horizon.”
Additionally, the hard data is more complex than it looks at first glance. The employment market in June added the vast majority of its jobs in the state government and health care industries. “Employment growth outside of those marquee industries has been anemic at best, and the duration of unemployment for the typical unemployed worker seeking a job continues to creep up,” Cory Stahle, an economist at Indeed Hiring Lab, wrote about the June jobs report. “This is not a bad report, but it might not be as solid as it seems on the surface.”
Other metrics are not positive at all. First-quarter GDP growth dropped at a 0.5 percent annualized rate, revised down in late June from its previous reported level of 0.2 percent. Consumer spending is also down, including a 50 percent drop in car buying in May.
But the indicators are still difficult to interpret. “The tariff shock is enormous. I’m not saying that in the sense of, it will speed up or slow the economy. I’m saying that in the sense that it will distort people’s behavior,” Wolfers said. “A lot of the spending that happened in the second quarter happened in the first quarter.” This distortion affects not just first-quarter growth, but also second-quarter growth. And as the tariffs continue to stop and start, spending in later quarters may be affected, as well.
All of this makes it difficult to draw broad conclusions about the overall economy. “To a greater extent than I can remember in years and years, we are in thick fog,” Wolfers added.
The stock market, on the other hand, is clearly signaling investor confidence. The S&P 500 hit an all-time high on July 3, despite being only days away from Trump’s July 9 tariff pause deadline. The Nasdaq composite, meanwhile, closed at a record high on Wednesday. Part of the reason for the optimism is investors shifting their expectations about U.S. trade policy. “To Trump’s great credit, whether intentional or not, he has moved the Overton window way into tariff crazytown, so that now a trade deal with Vietnam that puts tariffs at 20 percent, which is terrible, is celebrated by the market because he threatened 45 percent,” Lincicome said. “Does that mean that the policies are ‘working’? No. It just means that investors are not, right at the moment at least, fearful of the worst.”
At the same time, the value of the U.S. dollar had its worst start to a year since 1973. When compared against other currencies, the dollar’s value dropped more than 7 percent in six months, and analysts predict that it could decline another 10 percent before the end of the year. Because of both Trump’s trade policies and rising debt, investors have become less confident in the U.S. as a safe haven for investment. A weaker dollar gives exporters a price advantage, but it makes imports more expensive, exacerbating the effect of the Trump tariffs on consumers and weakening purchasing power.
“People just don’t see the United States being the main growth engine for the world, and I think some people are fearful of holding dollars these days,” Lincicome said. “Treasuries are better, they’ve had a couple good auctions and yields are down a bit, but they’re not great.” Foreign direct investment into the U.S. declined precipitously in the first quarter of the year.
If the tariffs eventually work their way through the economy and spark economic pain, it might not be as bad as a full-blown recession, but it still could be noticeable. “It is really hard to say where the actual, exact number is. It’s safer to say that it will be slower growth, and higher inflation, and lower employment than what it would have been otherwise, and by a measurable, important degree,” Lincicome said. Before Trump’s latest tariffs were factored in, analysts estimated that GDP could decline by 0.8 percent, and inflation is expected to hover around 3 percent by the end of the year.
“Now, these are not disastrous things,” Lincicome said. “But it just means we’re a little poorer and a little worse off.”
