The US economy is facing uncertainty due to rising tariffs, slowing job creation, and inflation concerns. Economists say the situation could resemble a “soft patch” rather than a deep recession. However, indicators suggest that inflation and the labor market are headed in the wrong direction.
Price growth has sped up again, particularly in categories of goods heavily imported and now steeply tariffed. Credit card data analyzed by Bank of America shows spending held up among higher-income consumers, but this could be an illusion as people stock up to get ahead of tariffs kicking in.
Foreign manufacturers are hesitant to commit to expansions in the US due to uncertainty around what kind of tariffs they might face on imported materials and what obstacles they might encounter exporting to other countries. This is adding to a frustrating picture for workers looking for new opportunities or young people looking for their first job.
The labor market shifted sharply in early August, with large downward revisions to job creation over the past several months. However, layoffs are not spiking, and the talent consulting firm LHH reported that its career transition business was up about 5 percent since last year due to increased displacement on account of artificial intelligence.
Economists warn that if the unemployment rate remains where it has been for more than a year, between 4 and 4.2 percent, there is more risk that tariff-driven price increases could turn into persistent inflation. However, Ajay Rajadhyaksha, global chairman of research at Barclays, doesn’t think the Federal Reserve needs to fret about an upward price spiral too much at this point.
The economy isn’t there yet, but companies are treading carefully, anticipating that things might get worse. The stock market may be at record highs, but it largely reflects the fortunes of a few large firms driven by exuberance around artificial intelligence. As tariffs and uncertainty continue to hit the US economy, it remains to be seen whether the situation will pass by in the distance or leave destruction in its wake.
Source: https://www.nytimes.com/2025/08/19/business/economy/us-economic-trends-unemployment-inflation.html