Economic sentiment rises slightly as the U.S. government shuts down

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) rose by 0.2 points, from 31.7 to 31.9, at the start of the third quarter of 2025 and following the first government shutdown since 2019. 

Click to view image.

Three of the ESI’s five indicators increased during this period. Confidence in finding a new job increased the most, increasing 1.8 points to 27.4.

—Confidence in the overall U.S. economy increased 1.3 points to 31.9.

—Confidence in making a major purchase increased 0.3 points to 25.4.

—Confidence in buying a new home decreased 0.4 points to 24.6.

—Confidence in personal finances decreased 1.8 points to 50.1.

On October 1, the federal government formally entered a partial shutdown after Congress failed to pass needed appropriations bills to keep the government running. The Congressional Budget Office estimated that about 750,000 federal employees have been furloughed due to this lapse in funding and that many others are continuing to work without pay.  

The White House budget office has reportedly directed agencies to begin identifying and drafting potential reduction in force (RIF) plans—contingency measures that, if implemented, would extend beyond furloughs to include layoffs of federal employees during the government shutdown. The government shutdown is also delaying the release of critical U.S. economic indicators such as the September Jobs Report that was due to be released on October 3. If the shutdown continues, additional data such as the Consumer Price Index could also be delayed. This comes at a precarious time for the U.S. economy, as evidence of a potential slowdown in hiring has prompted the Federal Reserve to restart cutting interest rates. 

The Fed’s preferred inflation gauge, the core personal consumption expenditures (PCE) price index, held steady at 2.9 percent year-over-year in August, with a 0.2 percent monthly gain. The overall PCE rose 0.3 percent for the month, nudging annual inflation to 2.7 percent, while personal income and spending exceeded expectations at 0.4 percent and 0.6 percent respectively. Despite the Fed’s two percent inflation target, the data is unlikely to shift the central bank’s projected course of two more rate cuts by the end of 2025.

On September 25, the Bureau of Economic Analysis released their third estimate of second quarter real gross domestic product (GDP) for 2025, showing that real GDP increased at an annual rate of 3.8 percent. This reflects a 0.5 percentage point increase from the second estimate due to upward revisions for consumer spending. The overall increase in real GDP can be attributed to an increase in consumer spending and a decrease in imports, which were partly offset by a decrease in investment and exports.

On September 24, the U.S. Census Bureau released August residential sales data, showing a seasonally-adjusted annual rate of 800,000 sales of new single-family homes—20.5 percent above the July 2025 rate of 664,000. The seasonally-adjusted estimate of new houses for sale was 490,000—1.4 percent below the July 2025 estimate of 497,000. The median sales price of new houses sold in August was $413,500 (versus $395,100 in July), and the average sales price of new houses sold in August was $534,100 (versus $478,200 in July).

Click to view image.

The ESI’s three-day moving average began this two-week stretch at 32.8 on September 24. It then rose to a two-week high of 36.0 on September 26 and then steadily declined to a low of 28.9 on October 4, before rising again to 32.6 to close out the session.

Click to view image.

The next release of the ESI will be on Wednesday, October 22, 2025.

Economic sentiment decreases following interest rate cut

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) fell by 0.8 points, from 32.5 to 31.7, after the Federal Reserve cut interest rates by a quarter of a percentage point.

Click to view image.

Two of the ESI’s five indicators decreased during this period. Confidence in the overall U.S. economy decreased the most, declining 3.8 points to 30.6. 

—Confidence in finding a new job decreased 3.7 points to 25.6.
—Confidence in making a major purchase increased 0.3 points to 25.1.
—Confidence in personal finances increased 1.4 points to 51.9.
—Confidence in buying a new home increased 1.8 points to 25.0.

The Federal Reserve cut interest rates by a quarter of a percentage point at the September Federal Open Markets Committee (FOMC) meeting, lowering the new target range for the federal funds rate to 4 to 4.25 percent. The FOMC underscored that the final decision to cut rates came down to the slowing employment situation, stating, “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.” Eleven of the 12 voting members of the FOMC voted for the quarter-point cut, with newly appointed Fed governor Stephen Miran dissenting in favor of a half-point cut.

In its Summary of Economic Projections, the FOMC signaled that additional interest rate cuts are still on the table for 2025, with nine officials anticipating two cuts by the end of the year. However, substantial divisions among FOMC participants were also apparent, as one Fed official indicated that rates will decline by 1.25 percent this year while another predicted interest rates would be hiked back up 0.25 percent by the end of 2025.

The Labor Department released the August Consumer Price Index (CPI) showing a 0.4 percent increase in overall inflation with a 0.3 percent rise in core inflation. Year-over-year, the CPI increased 2.9 percent, with core inflation rising 3.1 percent annually. These increases were primarily driven by rising shelter costs, which rose 0.4 percent in August. Prices for food (+0.5 percent), energy (+0.7 percent), and gasoline (+1.9 percent) also increased during the month. The data highlighted the difficulties the Fed faces in pursuing its dual mandate. 

Survey data from Freddie Mac showed that the average 30-year mortgage rate continues to decline, falling to 6.26 percent during the week ending September 18. This marks the lowest average rate since early October 2024. This decline has provided much-needed relief to both homebuyers and homeowners, reflected in recent data from Mortgage Bankers Association showing mortgage applications jumped nearly 30 percent in the week ending September 12, with refinances surging 58 percent.

Click to view image.

The ESI’s three-day moving average began this two-week stretch at 31.6 on September 10. It then decreased to its low of 30.2 on September 12. It then began to oscillate, rising and falling before increasing again to hit a 3-day high of 32.5 on September 17 through 19. It then fell again to 31.7 on September 23 to close out the session.

Click to view image.

The next release of the ESI will be on Wednesday, October 8, 2025.

Economic sentiment collapses ahead of the September Fed meeting

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) fell sharply by 2.2 points, from 34.7 to 32.5, ahead of the September meeting of the Federal Open Markets Committee (FOMC). 

Click to view image.

All five of the ESI’s indicators decreased during this period. Confidence in buying a new home decreased the most, declining 3.2 points to 23.2. This marks this indicator’s largest single-period loss in over a year.

—Confidence in the overall U.S. economy decreased 3.1 points to 34.4.

—Confidence in making a major purchase decreased 1.9 points to 24.8.

—Confidence in personal finances decreased 1.7 points to 50.5.

—Confidence in finding a new job decreased 1.3 points to 29.3.

The Commerce Department‘s latest personal consumption expenditures (PCE) price index showed that core inflation, which excludes volatile food and energy prices, rose 2.9 percent year-over-year, the highest annual rate since February. This increase to the Federal Reserve’s preferred inflation gauge was in-line with economists’ expectations. 

The Bureau of Economic Analysis reported its second estimate of inflation-adjusted gross domestic product (GDP) for the second quarter of 2025, which showed that the U.S. economy grew at a 3.3 percent annualized rate. The increase in real GDP reflected a decrease in imports and an increase in consumer spending, partly offset by smaller decreases in exports and investment. This figure was revised up by 0.3 percentage points from the initial estimate, reflecting upward revisions to investment and consumer spending, smaller decreases in government spending, and increases in imports.

The August Jobs Report showed a marked slowdown in the U.S. labor market, with just 22,000 new jobs added—well below expectations and the weakest monthly gain since the depths of the pandemic. Revised data revealed a net job loss in June, the first since December 2020, while unemployment ticked up to 4.3 percent, its highest level in nearly four years. Hiring declines were broad-based, particularly in manufacturing, construction, and business services, with gains narrowly concentrated in healthcare and social assistance. 

The Bureau of Labor Statistics‘ preliminary benchmark revision showed that new payroll growth in the year ending March 2025 was overstated by 911,000 jobs, potentially the largest downward revision on record. This adjustment cuts the previously reported average monthly job gains in half, suggesting the labor market was significantly weaker than believed and implying the slowdown seen in recent months began earlier than recognized. These data bolster expectations that the Federal Reserve will begin cutting interest rates at its next meeting, especially as Fed Chair Jerome Powell and other officials have already signaled concerns over rising labor market risks.

Click to view image.

The ESI’s three-day moving average began this two-week stretch at 33.5 on August 27. It then increased to its peak of 35.1 on August 30. It then began to oscillate, falling and rising before declining again to hit a low of 29.6 on September 7. It then began to rise again to 31.3 on September 9 to close out the session.

Click to view image.

The next release of the ESI will be on Wednesday, September 24, 2025.

Economic sentiment rises as the Fed signals future rate cuts

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) increased by 1.6 points from 33.1 to 34.7, driven upwards by a surge in confidence in the overall U.S. economy.

Click to view image.

All five of the ESI’s indicators increased during this period. Confidence in the overall U.S. economy increased the most, climbing 2.6 points to 37.5. This marks this indicator’s largest single-period gain since November 2024.

—Confidence in buying a new home increased 2.3 points to 26.4.
—Confidence in major purchases increased 1.8 points to 26.7.
—Confidence in personal finances increased 0.7 points to 52.2.
—Confidence in finding a new job increased 0.4 points to 30.6.

Fed Chair Jerome Powell signaled that the Fed may be considering rate cuts, a notable shift after eight consecutive months of holding rates steady. Powell underscored the “new challenges” confronting the U.S. economy this year—including tariffs, a softening labor market, slower consumer spending weighing on GDP, and ongoing inflationary pressures—and stated that “the shifting balance of risks may warrant adjusting our policy stance.” Powell noted that the labor market appears to be in a “curious kind of balance” with both slowing supply and demand of workers. He also addressed the impact of tariffs, noting that their effects on consumer prices “are now clearly visible,” and adding that a “reasonable base case is that the effects will be relatively short lived—a one-time shift in the price level.”

The Bureau of Labor Statistics (BLS) reported that the Producer Price Index rose 0.9 percent in July, the sharpest monthly increase since June 2022. Meanwhile, the index minus foods, energy, and trade services increased 0.6 percent, its largest gain since March 2022. Economists told CNBC that these data, combined with the CPI data released last period, suggest inflationary pressures are building in the economy, but consumers may not yet be feeling the impact, as businesses may be absorbing much of the higher costs stemming from tariffs.

Survey data from Freddie Mac showed that the average 30-year mortgage rate declined to 6.58 percent during the week ending August 14, a decline of five basis points from the previous week ending August 7. This marks the lowest average rate since October 2024. While the dip offers modest relief for prospective home buyers, rates continue to remain elevated compared to levels experienced over the last five years.

Meanwhile, data from the National Association of Realtors (NAR) showed that existing home sales rose 2 percent in July. This data came in above economists’ expectations. NAR Chief Economist Lawrence Yun stated “The ever-so-slight improvement in housing affordability is inching up home sales.” The uptick adds to hopes that falling mortgage rates could keep sales moving higher into August. 

On August 21, the U.S. and the EU announced that they agreed on a trade framework. Under the terms, the U.S. will maintain its 27.5 percent tariff on EU automobiles until the bloc introduces legislation to cut duties on U.S. agricultural and seafood products, after which auto tariffs will drop to 15 percent retroactive to August 1. Nearly all European exports to the U.S. will face a 15 percent tariff, with exemptions for items like cork, aircraft, and certain pharmaceuticals, while steel and aluminum duties remain at 50 percent. The deal also includes EU commitments to invest heavily in U.S. sectors, purchase large amounts of U.S. energy and semiconductors, and work toward regulatory alignment on automobiles.

Click to view image.

The ESI’s three-day moving average began the two-week stretch at 33.5 on August 13. It then slightly decreased to a low of 33.3 on August 14 before increasing to its peak at 36.2 on August 16. It oscillated, decreasing to 33.5 on August 24 before increasing to 35.2 on August 25. It then decreased slightly again to 35.0 on August 26 to close out the session.

Click to view image.

The next release of the ESI will be on Wednesday, September 10, 2025.

Economic sentiment falls sharply as “reciprocal” tariffs take effect

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) decreased by 1.2 points from 34.3 to 33.1 during a two-week period marked by escalating U.S. tariff rates and softening economic indicators. 

Click to view image.

Four of the ESI’s five indicators decreased during this period. Confidence in finding a new job decreased the most, falling 2.0 points to 30.2.

—Confidence in major purchases decreased 1.7 points to 24.9.

—Confidence in buying a new home decreased 1.3 points to 24.1.

—Confidence in personal finances decreased 1.3 points to 51.5.

—Confidence in the overall U.S. economy increased 0.4 points to 34.9.

On July 31, the Trump administration revealed an updated tariff plan which maintains a 10 percent tariff on imports from countries with which the U.S. runs a trade surplus, while introducing a new minimum 15 percent tariff on imports from countries with which the U.S. has a trade deficit. These tariffs took effect on August 7, facing a mixed reaction. Administration officials lauded their enactment, with U.S. Commerce Secretary Howard Lutnick claiming that the United States is “going to be heading towards $50 billion a month in tariff revenue…” In contrast, representatives from countries such as Canada—now subject to a 35 percent tariff—emphasized the need to increase trade with other partners.

In the days leading up to and following the August 1 tariff deadline, the White House announced trade deals with India and South Korea and delayed the implementation of higher rates on Mexico and China for an additional 90 days. Under the agreement with South Korea, goods from the country will now face a 15 percent import tax, with steel and aluminum facing higher rates in line with the global standards. Additionally, as part of the deal, South Korea committed to investing $350 billion into U.S. projects and $100 billion to the purchase of energy products. The Trump administration initially announced a 25 percent tariff on India ahead of the deadline. However, President Trump has since increased this rate by another 25 percent, stating that “the Government of India is currently directly or indirectly importing Russian Federation oil.” 

The Commerce Department reported its initial estimate of gross domestic product (GDP) for the second quarter of 2025, which showed that the U.S. economy grew at a 3.0 percent annualized rate, rebounding from a 0.5 percent contraction in the first quarter. However, this headline figure was largely driven by a nearly 5-percentage-point contribution from trade, as imports fell sharply following first-quarter stockpiling ahead of tariff deadlines. Stripping out volatile components like trade and inventories, final sales to private domestic purchasers—a more accurate measure of core demand—rose just 1.2 percent, marking the weakest performance since late 2022. Taken together, the first half of 2025 saw GDP expand at an average annual rate of 1.2 percent, a notable slowdown from 2024’s 2.5 percent pace.

The Federal Reserve left interest rates unchanged at between 4.25 and 4.5 percent at the July Federal Open Markets Committee (FOMC) meeting, marking the fifth meeting in a row that it held rates steady. In its statement, the FOMC said “uncertainty about the economic outlook remains elevated” amid “somewhat elevated” inflation and underscored its attentiveness “to the risks to both sides of its dual mandate.” Two Fed Governors, Christopher Waller and Michelle Bowman, dissented against the Fed’s decision, both advocating for a quarter percentage point reduction. Waller stated “I believe that the wait and see approach is overly cautious, and, in my opinion, does not properly balance the risks to the outlook and could lead to policy falling behind the curve.” This marks the first meeting since 1993 in which two governors dissented and reflects the high degree of economic uncertainty vexing policymakers. 

Data from the Bureau of Labor Statistics found that U.S. job growth slowed sharply in July, with employers adding just 73,000 jobs and the unemployment rate rising to 4.2 percent. Job gains for May and June were revised down by a combined 258,000, underscoring a weakening labor market. Most July gains came from healthcare, while federal government and manufacturing jobs declined by 12,000 and 11,000, respectively. Oliver Allen, a senior U.S. economist at Pantheon Macroeconomics, told The New York Times, “After this report, it doesn’t look like a particularly healthy jobs market.” 

Two major indicators of inflation were also released this period, which along with the July Jobs Report, brought the Fed’s balancing act into sharper focus. The Commerce Department’s release of the June Personal Consumption Expenditures Price Index (PCE) showed that inflation, excluding volatile food and energy prices, increased 0.3 percent from May to June and 2.8 percent year-over-year. The 2.8 percent annual rate is the highest since February and remains above the Fed’s 2 percent target. 

Additionally, the Labor Department reported that the July Consumer Price Index (CPI) showed a 0.2 percent increase in overall inflation with a 0.3 percent rise in core inflation. Year-over-year, the CPI increased 2.7 percent, with core inflation rising 3.1 percent annually. These numbers were in-line with economists’ predictions but mark the highest yearly inflation rate since February. The index for shelter prices rose 0.2 percent in June and was the primary factor in the rise in monthly CPI. 

Click to view image.

The ESI’s three-day moving average began the two-week stretch at 33.3 on July 30. It then oscillated, decreasing to 31.3 on July 31 then increasing 34.7 on August 5. The moving average then fell again to a low of 31.2 on August 8 before climbing to a high of 35.4 on August 11. It then decreased to 34.3 on August 12 to close out the session.

Click to view image.

The next release of the ESI will be on Wednesday, August 27, 2025.