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.

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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.

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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.

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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. 

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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. 

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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.

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

Economic sentiment slightly decreases ahead of the August 1 tariff deadline

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) decreased by 0.1 points from 34.4 to 34.3. This decrease was driven by a decline in confidence in the U.S. economy, which experienced its largest fall since February 2025.

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Two of the ESI’s five indicators decreased during this period. Confidence in the overall U.S. economy decreased the most, falling 2.5 points to 34.5.

—Confidence in buying a new home decreased 0.2 points to 25.4.
—Confidence in major purchases increased 0.3 points to 26.6.
—Confidence in finding a new job increased 0.6 points to 32.2.
—Confidence in personal finances increased 1.3 points to 52.8.

On July 23, Japan and the U.S. established a trade deal mandating reciprocal 15 percent tariffs. Japan also pledged $550 billion in investment in the United States. The agreement is part of a broader U.S. effort to finalize bilateral deals before the pause on President Donald Trump’s worldwide, “reciprocal” tariffs ends on August 1. Last week, the White House announced details of its trade agreement with Indonesia, specifying that imports from the country will face a 19 percent tariff and a 40 percent tariff on goods largely made with materials or components from other nations. In exchange, the majority of U.S. goods exported will not face any levies, and Indonesia agreed to lift various trade barriers currently in place. The U.S. also reached a trade deal with the Philippines which will impose a 19 percent tariff on imports from the country.

Additionally, on July 27, the U.S. announced a trade deal with the EU. Under the U.S.–EU agreement, a 15 percent tariff will apply to most European imports, reduced from the initially threatened 30 percent. In return, the United States committed to $750 billion in energy purchases, while the EU agreed to invest $600 billion in the United States, including in military equipment. Steel and aluminum imports from the EU will remain subject to a 50 percent tariff. Certain imports, including aircrafts, semiconductor equipment, and select pharmaceuticals are exempt from tariffs. While financial markets have responded positively and some observers credit the deals with preventing a trade war, critics in Europe have expressed concern about inflation risks and argue that the agreements create an uneven playing field tilted in favor of the United States.

The Commerce Department released June retail sales data which found that retail and food sales totaled $720.1 billion, marking a greater-than-expected 0.6 percent increase from the previous month, and a 3.9 percent increase from June 2024. Total sales from April to June 2025 increased 4.1 percent from the same period last year. Broken down by kind of business, retail trade sales increased 0.6 percent from May and 3.5 percent from the previous year. Nonstore retail sales grew 4.5 percent from the previous year, while food sales increased 6.6 percent.

Sales of new single-family homes rose 0.6 percent in June to a seasonally adjusted annual rate of 627,000 units, according to the U.S. Census Bureau and the Department of Housing and Urban Development. While the data does show an increase in new home sales, the increase fell short of economists’ expectations, with higher mortgage rates pushing inventory to levels last seen in late 2007. Meanwhile, data from the National Association of Realtors (NAR) showed that sales of existing homes decreased 2.7 percent in June, with the median existing-home price for the month rising 2 percent year-over-year to $435,300, its highest level ever.

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The ESI’s three-day moving average began the two-week stretch at 35.3 on July 16. It then decreased, falling to a low of 32.9 on July 21 before trending up to a high of 35.5 on July 28. Finally, the three-day moving average fell to 33.8 on July 29 to close out the session.

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The next release of the ESI will be on Wednesday, August 13, 2025.

Economic sentiment picks up after three consecutive drops

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) increased by 1.0 points from 33.4 to 34.4, recovering after three consecutive periods of declines.

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Four of the ESI’s five indicators increased during this period. Confidence in making a major purchase increased the most, rising 2.1 points to 26.3.

—Confidence in finding a new job increased 1.9 points to 31.6.
—Confidence in buying a new home increased 1.1 points to 25.6.
—Confidence in the overall U.S. economy increased 0.5 points to 37.0.
—Confidence in personal finances decreased 0.8 points to 51.5.

On July 15, the Bureau of Labor Statistics released the Consumer Price Index (CPI) report for June, showing a 0.3 percent increase in overall inflation and a 0.2 percent rise excluding food and energy. This follows a 0.1 percent monthly increase in all items reported for May. Year-over-year, the CPI increased 2.7 percent, following May’s 2.4 percent increase. These numbers were in line with economists’ predictions and mark the highest yearly inflation rate since February. The index for shelter rose 0.2 percent in June and was the primary factor in the rise in monthly CPI. Meanwhile, the energy index rose 0.9 percent, and the food at home index increased 0.3 percent.

On July 2, President Donald Trump announced on Truth Social that the U.S. had reached a trade deal with Vietnam. The deal imposed a 20 percent tariff on Vietnamese goods and a 40 percent tariff on goods that originated in a different country. In exchange, the U.S. goods will not face a tariff in Vietnam. A final version of the deal has yet to be released.

On July 7, President Trump delayed implementation of the “reciprocal” tariffs until August 1. This decision came amid the president’s threat of an additional 10 percent tariff to “Any Country aligning themselves with the Anti-American policies of BRICS,” and his announcement that many countries—such as Japan and South Korea—will be subject to adjusted, often higher, tariffs starting August 1. The president has subsequently introduced additional tariff measures on other nations starting August 1, including a 35 percent tariff on Canada and a 30 percent tariff on goods from both the EU and Mexico. Following these announcements, on July 15, President Trump posted that the U.S. has reached a trade deal with Indonesia, with details forthcoming.

On July 3, the Bureau of Labor Statistics released its June Jobs Report, showing that total nonfarm payroll employment increased by 147,000 jobs while the unemployment rate ticked down 0.1 percentage points to 4.1 percent. These gains were well above the 110,000 jobs predicted by economists polled by the Wall Street Journal. The top sectors for employment increases were state government and health care, while job losses were largely from the federal government.

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The ESI’s three-day moving average began the two-week stretch at a low of 29.8 on July 2. It then increased, rising to a high of 35.9 on July 6 before falling to 33.9 on July 9. It remained steady at 33.9 on July 10 before rising to 35.7 on July 12. The three-day moving average then oscillated and ultimately fell to 34.2 to close out the session.

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The next release of the ESI will be on Wednesday, July 30, 2025.

Economic sentiment slightly declined at the end of Q2

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) declined by 0.3 points from 33.7 to 33.4, marking a small dip in overall confidence over the past two weeks.

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Three of the ESI’s five indicators decreased during this period. Confidence in making a major purchase decreased the most, falling 1.8 points to 24.2.

—Confidence in buying a new home decreased 1.6 points to 24.5.

—Confidence in finding a new job decreased 1.3 points to 29.7.

—Confidence in personal finances increased 0.8 points to 52.3.

—Confidence in the overall U.S. economy increased 2.4 points to 36.5.

The Federal Reserve left interest rates unchanged at between 4.25 and 4.5 percent at the June Federal Open Markets Committee (FOMC) meeting, marking the fourth meeting in a row that it held rates steady. In its statement, the FOMC said  “uncertainty about the economic outlook has diminished but remains elevated” amid persistent inflation, solid economic growth, strong labor market conditions, and a low unemployment rate. In its Summary of Economic Projections, the FOMC signaled that interest rate cuts are still on the table, with eight officials anticipating two cuts by the end of 2025. Later in June, Fed Chair Jerome Powell told the House Financial Services Committee that he expects inflation to begin rising soon due to higher tariff rates and that the Fed is going to continue monitoring tariff impacts before cutting rates again.

The Bureau of Economic Analysis revised its estimate for this year’s first quarter real GDP down even further in its third estimate, showing that the U.S. economy shrank at an annual rate of 0.5 percent, in contrast to the 2.4 percent increase in GDP during the fourth quarter of 2024. The BEA cited a decline in net exports as the primary driver in the decrease in real GDP, likely the result of higher expected tariff rates, as well as a decrease in government spending.

Separately, on June 30, the BEA found that the U.S. net international investment position for the first quarter of 2025 was -$24.61 trillion, an improvement of $1.92 trillion from -$26.54 trillion during the fourth quarter of 2024. This change was attributed to financial transactions, as well as changes in prices and exchange rates due to the appreciation of foreign currencies against the U.S. dollar. The U.S. dollar has declined in value by 10.7 percent relative to other major currencies this year, the weakest start to a year since the U.S. left the gold standard in 1973. This has occurred in part due to uncertainty over U.S. tariff policy and decreased investor confidence in the dollar as the world’s reserve currency.

The U.S. Census Bureau reported that sales of new single-family houses in May 2025 decreased 13.7 percent month-over-month, down from 722,000 in April to 623,000 in May. This data comes in below the 695,000 sales predicted by economists polled by the Wall Street Journal and reflects a year-over-year decline of 6.3 percent. Meanwhile, the National Association of Realtors (NAR) reported that U.S. existing home sales in May increased 0.8 percent from April while year-over-year sales declined 0.7 percent. NAR Chief Economist Lawrence Yun attributed the “subdued sales” to “persistently high mortgage rates.”

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The ESI’s three-day moving average began the two-week stretch at 33.6 on June 18. It then climbed to 34.7 on June 19, then oscillated between rising and falling before decreasing to its lowest point of 32.6 on June 26. The three-day moving average then climbed to a high of 35.1 on June 29 before falling to 32.8 on July 1 to close out the session.

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The next release of the ESI will be on Wednesday, July 16, 2025.