As Headlines Remain Negative, the U.S. Economy Chugs Along
In recent weeks, I have written extensively about tariff-induced economic uncertainty. Many analysts continue to call for a recession, and this past week the World Bank projected the U.S. economy would grow just 1.4% in 2025—down from 2.8% last year. To be fair, I think concerns about rising input costs, inflation, business investment, and consumer spending are all valid and should be monitored closely in the coming months.1
But as I write, the reality on the ground looks quite different from the gloomy outlook that tends to play out in financial media. The U.S. economy has largely been resilient, with worst-case scenarios on tariffs avoided while economic fundamentals remain stable and strong. This combination has been driving the market rally, in my view.2
An overview of recent economic data underscores my point. According to the Bureau of Labor Statistics, the U.S. economy added 139,000 jobs in May, firmly in positive territory. The unemployment rate remained unchanged at 4.2%, where it has hovered in a narrow range for over a year. This may seem unremarkable, but that’s also the point. The labor market isn’t booming or breaking—it’s steadily supporting growth.
Private Payrolls Have Grown at a Steady Pace in Recent Months
Importantly, private sector hiring continues to outpace job losses at the federal level, where government employment declined by 22,000. Wages also climbed in May, with average hourly earnings rising 0.4% month-over-month and 3.9% year-over-year. That’s comfortably above the current pace of inflation, helping to support real household income and consumer spending. It’s a key piece of data for markets, especially given concerns that rising prices would continue eroding purchasing power.
On the inflation front, recent data continues to suggest that the worst of the inflation shock is behind us. The Federal Reserve’s preferred measure, the PCE price index, rose just 2.1% year-over-year in April, putting it a mere tenth of a percentage point above the Fed’s long-run average inflation target. Some would argue that this opens the door for the Fed to resume rate cuts, which would serve as a tailwind for markets. I’m not in that camp. In my view, stocks don’t need rate cuts to do well.
I do not want to imply that the U.S. economy is firing on all cylinders, however. Retail sales, for example, were up 4.75% from a year ago but fell month-over-month in May. Consumer demand has clearly cooled from the post-pandemic surge, and forward momentum has become more uneven. Activity in the services sector, which drives most U.S. economic output, softened in May as the ISM Services PMI fell to 49.9, its first contraction in nearly a year. New orders fell, inventories declined, and pricing pressures appeared to pick up again, a combination that suggests businesses are feeling the weight of tariff uncertainty and are growing more cautious with forward planning.
The manufacturing sector also contracted for a third straight month in May, with the Manufacturing PMI registering 48.5. While some components like new orders and production showed slight improvement, others—such as inventories, exports, and employment—remained under pressure. These readings aren’t a signal of imminent collapse, but they do reinforce that certain areas of the economy are still contending with lag effects from prior shocks, policy uncertainty, and structural adjustments.
The bottom line, we are not seeing a uniform expansion across the economy, and that’s ok. It’s important for investors not to confuse economic resilience with gangbusters growth. The latter is not needed to power stocks higher.
Bottom Line for Investors
This kind of economic resilience doesn’t mean risk is lower today than it was before “Liberation Day.” As uncertainty over trade deals and future tariff actions remains high, I do not expect businesses and consumers to invest and spend confidently. The net effect could be a short or medium-term drag on growth.
At the same time, however, investors waiting for a clear, euphoric “all clear” may find themselves missing the recovery as it quietly continues. If you find yourself waiting for the next tariff plunder, inflation shock, or retracement of the stock market’s recent rally, it may be time to move on. Markets and the economy already have.
1 J.P. Morgan. June 9, 2025. https://advisor.zacksim.com/e/376582/c-outlook-jobs-report-may-2025/5t5cv8/1247316295/h/owGnC7fvD72gai2Bp4elWIlr-gFT_8pC8PvEKtYttho
2 Wall Street Journal. May 2, 2025.
3 Fred Economic Data. June 9, 2025. https://advisor.zacksim.com/e/376582/series-ADPWNUSNERSA-/5t5cvc/1247316295/h/owGnC7fvD72gai2Bp4elWIlr-gFT_8pC8PvEKtYttho
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