Reality Check: The Hard Economic Data Are Not Good

Photograph by Nathaniel St. Clair

I was listening to this NPR piece on the continuing rise in the stock market Sunday morning and was struck to hear this:

“Despite the concerns about the impact of tariffs, the economy has held up much better than many expected.”

To some extent this is true, but only in the sense that there are always people predicting catastrophes. We are getting much new data this week — with reports on second quarter GDP, June consumption, and July employment — so the picture may look very different on Friday. But there is much in the data now that is clearly not good.

First and foremost, GDP did fall by 0.5 percent in the first quarter. There were good reasons for discounting this decline — most importantly that it was driven by a huge surge In imports in advance of Trump’s tariffs. But however much we might beat up the data, it still looks like a sharp slowing from 2024, when the economy grew 2.8 percent.

Even the final sales to domestic purchasers measure preferred by many analysts increased at just a 1.5 percent annual rate. I have already explained why this is a misleading number, as many of those surging imports ending up in the investment and consumption measures driving this measure. You don’t get to ignore the imports on the negative side but then count the imported investment and consumption goods on the positive side.

This bad GDP number is a very big deal in terms of hard data. Anyone looking at the second quarter GDP data (which will be released on Wednesday) who does not average it with the first quarter figure to get a first half number should be ignored immediately. They are either clueless about the economy or a Trumpian propagandist. It is that simple.

Beyond the first GDP data, consumption in the first half of 2025 is not looking good. Real consumption expenditures in May were slightly below the December level. The drop is not huge, but we do expect consumption to generally rise. In fairness, the December data were boosted by people already buying durable goods in advance of Trump tariffs, but even spending on restaurants and hotels was lower in May than in December.

And the labor market is not looking great. There was a quirky seasonal adjustment for state and local education that accounted for 63,500 of the 147,000 job gain reported in June. Pull that out and we’re looking at a gain of just 83,500 for the month. If that increase in education employment is not reversed over the next few months, I’ll eat my MAGA hat. To be fair, we should expect a sharp slowing in sharp job growth due to the slowdown in immigration that began last June under Biden, but it is still a negative sign for the economy’s growth.

There also was a slowing in nominal wage growth. The annualized rate of wage growth, comparing the last three months (April-June) with the prior three (January-March), is just 3.2 percent, down from 4.0 percent over 2023 and 2024. This slower wage growth coupled with the modest tariff induced increase in inflation, led to a small drop in real wages in June. This is just one month and the drop was small, but it is the wrong direction.

There are other data also going the wrong way. Housing construction has been trending lower all year, as has non-residential construction, led by a drop in factory and hotel construction. None of this is disastrous. We have avoided for now the hit from a complete cutoff of trade with China that we were briefly looking at back in April and early May or the full implementation of Trump’s “reciprocal” tariffs, but it is pretty hard to look at the data we have in hand and say all is good.

This doesn’t help answer the question of why the stock market is still rising. Why did it keep rising during the Internet bubble of 1998-2000? Why did house prices keep soaring from 2002 to 2006? I don’t have a crystal ball giving stock market predictions, but I do feel comfortable saying that the market is not rising because the hard data are good. Again, that could change this week.

This first appeared on Dean Baker’s Beat the Press blog.