Of course, when I say this week was a wild ride, there were multiple economic, market, and political reasons for this. Moreover, though my son also completed his first weekend of outdoor karting, and “wild” is certainly the right word. Just like he was learning a new track, new kart, and new competitors, that’s how this week’s data felt, too. There was plenty of new information, quite a few surprises, and a clear need to keep both hands on the wheel.
Mixed signals gave way to a clearer slowdown
For months, surveys indicated that employers and consumers were nervous, while hard data appeared resilient. This week, the gap narrowed. The Commerce Department reported that second-quarter GDP grew at a 3% annualized rate after inflation, an improvement from a negative first quarter, but the headline was again distorted by swings in imports (yes, tariff-related). A cleaner lens that the Fed watches closely, final sales to private domestic purchasers (which strips out trade, inventories, and government), rose just 1.2%, the weakest since late 2022. The follow-through wasn’t great either, as Thursday’s data confirmed consumer spending stagnated in Q2 and didn’t pick up into quarter-end.
Policy is definitely part of the story. The largest tariff hikes in decades, tighter immigration, and cuts to federal programs and jobs are beginning to weigh on demand. Economists had expected as much, given the sharp deterioration in sentiment earlier this year. And now, after months of questioning why it wasn’t showing up in the hard data, now it is.
Jobs report misses the apex
After the Fed held rates steady on Wednesday and inflation readings stayed sticky on Thursday, the labor report on Friday changed the tone. Payrolls rose by just 73,000 in July, well below expectations. There were sizable downward revisions to the prior two months as well, down almost 260k. On a three-month basis, job growth is the weakest since 2010, excluding the pandemic shock. If you put this in racing terms, not only did the jobs report miss the apex, it appears to be heading off the track.
The weakness was in cyclical pockets. Throughout the second quarter, payrolls declined in mining/logging, manufacturing, wholesale trade, and retail sectors, which together employ over 35 million people. Hiring also cooled in leisure and hospitality, likely reflecting softer consumer spending and fewer international visitors, as well as in state and local government. Most of the recent gains have come from steadier, non-cyclical areas, such as healthcare. It begs the question, will the labor market start to recover after this, or will the hits keep coming with the effects of tariffs, reduced immigration, and government job cuts?
Not off the track, but the risks are building
This isn’t a recession call, the kart hasn’t left the track just yet. Unemployment is still low at 4.2%. Equities set fresh highs as recently as Monday on strong earnings. Consumer sentiment has stabilized, though at subdued levels, and layoffs remain limited. Administration officials argue the weakness is temporary and that deal-making and tariff announcements have reduced uncertainty with most trading partners outside Mexico, Canada, and China. Limited retaliation so far has avoided a broad tariff spiral that was feared.
However, there are headwinds stacking up. Voluntary federal buyouts are expected to result in actual separations this fall, which will lead to lower payrolls. Funding cuts are rippling through nonprofits, state and local budgets, and universities. Importers who stockpiled ahead of tariff deadlines will cycle through their inventories, and a greater portion of the duty burden will likely be passed on to consumers. And while fewer immigrants can keep the unemployment rate stable for a time by slowing labor supply, the economy still needs a firmer pace of job creation to prevent slack from rising.
Trump gives BLS the black flag
If we thought the economic data alone wasn’t wild enough, we capped off the week with the most bizarre story. After the BLS announced the job numbers on Friday, President Trump was so upset with the job numbers that he fired the commissioner of the agency. Moreover, he stated on social media, “In my opinion, today’s Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad.” Not surprisingly, even The Wall Street Journal went out of its way to make it abundantly clear there was no evidence to corroborate this claim.
Now, let’s be clear. Is there work that could be done to improve the accuracy of the data, reducing the sizeable adjustments we continue to see? I would say that is highly likely (just look at the chart, which shows a noticeable increase in negative revisions post-COVID). However, firing the head of the BLS and claiming the data is rigged is probably not the best way to effectuate any real change in the reporting process. Not to mention, doing the firing on the same day as the data release.
Finish line
Beneath a decent GDP headline, private-sector demand cooled, consumer spending stalled, and the labor market downshifted. It’s not a crash, but it is a turn that deserves respect. As with karting, the right response isn’t panic or bravado—it’s disciplined control. Keep portfolios diversified, avoid chasing the hottest corners of the market, and leave room to get around the hairpin turn if needed. The track is still open; we just hit a stretch that requires more skill than speed. And as for my son’s performance, I’ll have to provide an update next week when I have some more data. Hopefully, it’s not quite as wild.
Markets / Economy
- Markets lost propulsion this week as weak data stung equities. The S&P finished the week down -2.4%, the Nasdaq was down -2.2%, and the small-cap Russell 2000 was down -4.2%.
- The Fed held rates steady at 4.25%–4.50% for a fifth straight meeting, as expected, but two governors dissented in favor of a cut—the first such dual dissent since 1993.
- Core PCE price index went up 0.3% from the previous month in June. It was the biggest rise in four months.
- The ISM Manufacturing PMI fell to 48 in July from 49 the prior month, missing expectations for an increase to 49.5. The reading marked the fifth consecutive month of contraction.
Stocks
- U.S. equities were in negative territory. Materials and Healthcare led the decline, while Utilities and Communication Services outperformed. Growth stocks led value stocks, and large caps beat small caps.
- International equities closed lower for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield decreased 17 basis points to 4.22% during the week.
- Global bond markets were in positive territory this week.
- Government bonds led for the week, followed by corporate bonds and high-yield bonds.
