Economic sentiment holds fairly steady

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) declined slightly by 0.1 points from 33.8 to 33.7, marking a minor dip in overall confidence over the past two weeks.

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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 1.0 points to 34.1.

—Confidence in personal finances decreased 0.7 points to 51.5.

—Confidence in buying a new home increased 0.4 points to 26.1.

—Confidence in making a major purchase increased 0.5 points to 26.0

—Confidence in finding a new job increased 0.7 points to 31.0.

The May Consumer Price Index showed that inflation rose 0.1 percent during the month, cooling slightly after rising 0.2 percent in April. Year-over-year inflation increased 2.4 percent. The Bureau of Labor Statistics (BLS) stated that shelter was “the primary factor in the all items monthly increase,” rising 0.3 percent in May. Meanwhile, energy declined 1.0 percent during the month, primarily driven by declining gas prices. Separately, BLS told economists that staffing shortages forced the agency to rely more heavily on less precise price estimation methods for April’s data. The Wall Street Journal reported that these staffing shortages have led economists to question the “quality of recent and coming inflation reports.”

The May Jobs Report showed that the economy added 139,000 jobs last month, while the unemployment rate remained unchanged at 4.2 percent. While the jobs data reflects a slowdown in hiring from April—where the economy added a revised 147,000 jobs—these gains were higher than the 125,000 jobs predicted by analysts polled by the Wall Street Journal. However, the employment-to-population ratio fell to 59.7 percent, its lowest point since January 2022. BLS attributes May job growth to gains in health care, leisure and hospitality, and social assistance.

President Donald Trump doubled tariffs on aluminum and steel on June 3, increasing the levy from 25 percent to 50 percent. The President stated in an executive order that “the increased tariffs will more effectively counter foreign countries that continue to offload low-priced, excess steel and aluminum in the United States market and thereby undercut the competitiveness of the United States steel and aluminum industries.” 

New data from the Bureau of Economic Analysis showed that the U.S. trade deficit declined in April to $61.6 billion. Bloomberg reported that this marks the trade deficit’s lowest level since 2023 and represents a 55 percent decline from March, where the deficit hit $138.3 billion ahead of President Trump’s “Liberation Day.” An analysis from the Congressional Budget Office (CBO) found that new U.S. tariffs announced prior to May 13 would reduce the deficit by $2.8 trillion after adjusting for their tariffs’ negative impact on growth. CBO also finds that the tariffs would increase inflation by 0.4 percentage points in 2025 and 2026. 

On June 10, the World Bank slashed U.S. growth projections in half for 2025, projecting an expansion of just 1.4 percent, a substantial decline from the 2.8 percent growth that the U.S. economy experienced in 2024. The World Bank warned that if the 90-day pause of the “Liberation Day” tariffs expires on July 31 and the “reciprocal” tariffs come into effect, that it would result in “global trade seizing up in the second half of this year” and that it would be “accompanied by a widespread collapse in confidence, surging uncertainty, and turmoil in financial markets.”

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The ESI’s three-day moving average began the two-week stretch at 33.6 on June 4 and then climbed to a high of 35.6 on June 7. It then fell to 32.8 on June 10 before briefly climbing up to 34.5 on June 12. The three-day moving average then fell again, hitting a low of 31.9 on June 16 before rising to 32.7 on June 17 to close out the session.

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The next release of the ESI will be on Wednesday, July 2, 2025.

Economic sentiment declines slightly following last period’s large surge 

The Penta-CivicScience Economic Sentiment Index (ESI) decreased by 0.4 points to 33.8, marking a slight decline after a significant gain in the previous two-week period.

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Three of the ESI’s five indicators decreased during this period. Confidence in finding a new job decreased the most, falling 2.6 points to 30.3.

—Confidence in the overall U.S. economy decreased 0.8 points to 35.1.
—Confidence in making a major purchase decreased by 0.6 points to 25.5.
—Confidence in buying a new home increased 0.7 points to 25.7.
—Confidence in personal finances increased 1.3 points to 52.2.

On May 28, the U.S. Court of International Trade ruled that some of President Donald Trump’s “retaliatory” tariffs were illegal. However, less than 24 hours later, an appeals court paused that decision and is weighing the appeal. Until then, the tariffs that were part of the ruling, including the levies imposed on Mexico, Canada, and China for their alleged involvement in the fentanyl trade and the global tariffs paused in April, will remain in effect. Commerce Secretary Howard Lutnick stated that the “tariffs are not going away,” and that President Trump has multiple avenues not affected by that court ruling through which to impose tariffs.

Despite this, President Trump is moving forward with his tariff policies, with the tariff on foreign steel and aluminum set to rise to 50 percent on June 4, and a planned 50 percent tariff on European Union imports delayed until July 9 following a conversation with European Commission President Ursula von der Leyen.

As global economic pressures mount, the Organisation for Economic Co-operation and Development (OECD) has cut its U.S. growth forecast to 1.6 percent for 2025 and 1.5 percent for 2026, down from a 2.2 percent increase forecasted in March. The downgrade reflects the impact of U.S. tariffs, persistent policy uncertainty, and a shrinking labor force. In parallel, inflation is expected to rise to 3.2 percent, potentially nearing 4 percent by year-end. Still, the OECD notes that if trade barriers ease and investment rebounds, AI-driven productivity gains could position the U.S. for stronger long-term growth.

The Bureau of Economic Analysis (BEA) released its second estimate of gross domestic product (GDP) for the first quarter of 2024 showing that the overall U.S. economy shrank at an inflation-adjusted annual rate of 0.2 percent. This is an upward revision from the initial estimate which showed a 0.3 percent decline in GDP. Consumer spending in the first quarter was lower than initially reported, increasing only 1.2 percent rather than the initial estimate of 1.8 percent. 

Additionally, the BEA’s latest personal consumption expenditures (PCE) price index showed that inflation, excluding volatile food and energy prices, increased 0.1 percent in April and 2.1 percent year-over-year. This represents a continued deceleration as core PCE increased 2.6 year-over-year from February and then 2.3 from March. The report also indicated increased caution among consumers due to ongoing uncertainty with U.S. trade policies as consumer spending fell to only a 0.2 percent increase month-over-month and as personal savings jumped to 4.9 percent, the highest level in almost a year.

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The ESI’s three-day moving average began the two-week stretch at 34.0 on May 21, oscillating down and up before falling to a low of 32.5 on May 28. The ESI then began rising, hitting a high of 34.5 on June 1, before falling again, declining to 33.5 on June 4 to close out the session.

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The next release of the ESI will be on Wednesday, June 18, 2025.

Economic sentiment surges after U.S.-China tariff deal

The Penta-CivicScience Economic Sentiment Index (ESI) posted its largest single-period increase since July 2024, rising 2.6 points to 34.2. This rebound comes after the United States and China agreed to a 90-day pause in additional tariffs, helping to reverse some of the ESI’s steady declines seen since the new year and return the index to levels close to those in late February 2025.

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All five of the ESI’s indicators increased during this period. Confidence in making a major purchase increased the most, rising 3.9 points to 26.1.

—Confidence in finding a new job increased 3.5 points to 32.9.

—Confidence in buying a new home increased 2.2 points to 25.0.

—Confidence in personal finances increased 1.9 points to 50.9.

—Confidence in the overall U.S. economy increased 1.2 points to 35.9.

On May 7, the Federal Reserve left interest rates unchanged at between 4.25 and 4.5 percent. In its statement, the Federal Open Markets Committee reiterated its commitment to lowering inflation and maximizing employment but stated that “Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.” Fed Chair Jerome Powell echoed this statement in a news conference, warning that “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”

Later, on May 12, the White House and China announced a trade agreement that effectively paused the ongoing trade war, surprising markets with deeper-than-expected tariff reductions. China lowered its tariffs on U.S. goods to 10 percent, while the U.S. set its tariffs on Chinese imports at 30 percent. The U.S. rate includes a reciprocal 10 percent to match China’s, plus an additional 20 percent levy tied to China’s alleged involvement in the U.S. fentanyl crisis. The announcement also included news that the two countries would continue talks over the following 90 days with the goal of achieving a longer-term deal. Stock markets rallied upon the news with the Nasdaq Composite rising 4.3 percent that day and the S&P 500 jumping 3.3 percent.

However, five days later on May 16, Moody’s downgraded the U.S.’ credit rating from “Aaa” to “Aa1,” the last of the major credit rating agencies to downgrade the U.S. from the highest possible credit rating. Moody’s stated, “Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs” and that “The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”

The April Consumer Price Index (CPI) report showed that inflation increased 0.2 percent month-over-month while year-over-year inflation rose 2.3 percent, cooling slightly after rising 2.4 percent in the twelve months ending in March. This marks the CPI’s lowest annual increase since February 2021 and came in below economists’ expectations of 2.4 percent. Housing prices continued to be the driving force behind inflation as shelter prices rose 0.3 percent in April, accounting for more than half of the overall increase in the CPI.

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The ESI’s three-day moving average began this two-week stretch at 35.9 on May 7. It then decreased to a low of 31.8 on May 12 before rising rapidly following the U.S.-China trade deal announcement, hitting 35.6 on May 15. The three-day moving average then oscillated before hitting a high of 36.1 on May 19 and then declining to 34.6 on May 20 to close out the session.

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The next release of the ESI will be on Wednesday, June 4, 2025.

Economic sentiment marginally increases for the first time since January

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) increased by 0.1 points to 31.6, marking a respite from three months of consecutive declines in overall economic confidence.

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Three of the ESI’s five indicators increased during this period. Confidence in personal finances increased the most, rising 1.7 points to 49.0.

—Confidence in buying a new home increased 1.0 point to 22.8.
—Confidence in the overall U.S. economy increased 0.2 points to 34.7.
—Confidence in finding a new job decreased 0.8 points to 29.4.
—Confidence in making a major purchase decreased 1.4 points to 22.2.

The Commerce Department released its estimate of gross domestic product (GDP) for the first quarter of 2025, which showed that the U.S. economy contracted at an inflation-adjusted annual rate of 0.3 percent. This represents the first quarter that the economy has decelerated since 2022. The Commerce Department stated, “Compared to the fourth quarter, the downturn in real GDP in the first quarter reflected an upturn in imports, a deceleration in consumer spending, and a downturn in government spending that were partly offset by upturns in investment and exports.” Imports during the first quarter of this year rocketed up 41 percent, likely in response to rising tariffs imposed by the U.S. and retaliatory tariffs from abroad. However, imports do not negatively impact GDP, which is a measure of domestic economic production. Instead, according to an analysis by The Economist, the decline in GDP likely reflects measurement errors as well as households and firms replacing domestic consumption and investment with imports in order to front-load spending to avoid rising tariffs. 

The April Jobs Report showed that the economy added 177,000 jobs last month while the unemployment rate remained unchanged at 4.2 percent. These gains were well above the 133,000 jobs predicted by economists polled by the Wall Street Journal and reflected increases across health care, transportation and warehousing, financial activities, and social assistance. 

Additionally, the Commerce Department released the March personal consumption expenditures (PCE) price index which showed that inflation, excluding volatile food and energy prices, increased less than 0.1 percent from February to March and 2.6 percent year-over-year. This represents a deceleration from February, where core PCE increased 2.8 percent year-over-year. Meanwhile, consumer spending increased 0.7 percent from February.

Buoyed by strong jobs numbers, slowing inflation, and the prospect of new trade deals following President Donald Trump’s decision to pause his “retaliatory” tariffs, last week the stock market fully recovered the losses it endured in April amid volatility in U.S. tariff policies. Jeffrey Roach, chief economist at LPL Financial, told The New York Times, “If the labor market holds up and the Trump administration walks back the most egregious tariffs, the economy could skirt a deep recession.” 

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The ESI’s three-day moving average began this two-week stretch at 31.5 on April 23. It then trended downward to 29.0 on April 26 before rising to 31.2 on April 28. The three-day moving average then fell to a low of 28.7 on May 1 before rising to a high of 36.1 on May 6 to close out the session.

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The next release of the ESI will be on Wednesday, May 21, 2025.

Economic sentiment hits lowest point since 2022

The Penta-CivicScience Economic Sentiment Index (ESI) decreased 1.3 points to 31.5, its lowest recorded point since July 2022 amid the ongoing economic responses to tariffs.

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All five of the ESI’s indicators decreased during this two-week period. Confidence in personal finances decreased the most, falling 3.8 points to 47.3.

—Confidence in the overall U.S. economy decreased 1.1 points to 34.5.
—Confidence in buying a new home decreased 0.8 points to 21.8
—Confidence in making a major purchase decreased 0.7 points to 23.6.
—Confidence in finding a new job decreased 0.1 points to 30.2.

After the initial enactment of President Trump’s “reciprocal” tariffs at midnight on April 9, the tariff plan was later paused that day, bringing all tariffs to a universal 10 percent with the exception of China upon which the administration imposed a 145 percent tariff on the following day. Regarding this pause, President Trump acknowledged that the bond market was “getting a little queasy” as investors began to sell off not just stocks but also U.S. Treasury bonds.

In response to the U.S.’ 145 percent tariff, China imposed a 125 percent tariff on U.S. goods. U.S. Treasury Secretary Scott Bessent stated that neither China nor the U.S. “thinks the status quo is sustainable” and stated that he is anticipating a “de-escalation” in the trade tensions between the two nations.

In the days following the president’s temporary reversal of his “reciprocal” tariff plan, additional exemptions were granted for smartphones and other consumer electronics. The Trump administration has also discussed further measures to address U.S. competitiveness and foreign trade barriers to maritime shipping and shipbuilding, pharmaceuticals, semiconductors, and critical minerals. Additionally, the administration imposed tariffs as high as 3,521 percent on solar imports from Cambodia, Thailand, Vietnam and Malaysia.

In the wake of these tariffs, the International Monetary Fund (IMF) slashed U.S. growth projections for 2025 down 0.9 percentage point from its January forecast, projecting a growth rate of 1.8 percent. Importantly, this calculation is based on data available as of April 4, meaning it does not include the 90 day pause in tariffs. The IMF also reduced its global growth rate projection 0.5 percentage point to 2.8 percent. The IMF’s chief economist, Pierre-Olivier Gourinchas stated “The surge in policy uncertainty is a major driver of the economic outlook. If sustained, the increase in trade tensions and uncertainty will slow global growth significantly, reflecting this complexity.”

Leading U.S. economic figures also expressed uncertainty in the wake of these tariffs. JPMorgan Chase CEO Jamie Dimon stated “The economy is facing considerable turbulence… with the potential positives of tax reform and deregulation and the potential negatives of tariffs and ‘trade wars,’ ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility.” Federal Reserve Chair Jerome Powell told the Economic Club of Chicago in a speech that, “Tariffs are highly likely to generate at least a temporary rise in inflation” and that slowing economic growth alongside rising inflation could cause stagflation, further complicating the Fed’s efforts to fulfill its dual mandate to achieve both maximum employment and stable prices.

The March Consumer Price Index (CPI) showed that inflation fell 0.1 percent month-over-month, marking the first time this metric has declined since May 2020. Meanwhile, year-over-year inflation rose 2.4 percent, cooling after rising 2.8 percent in the twelve months ending in February. These data are positive and a welcome sign to consumers in the face of high prices, though the Wall Street Journal notes that these data likely do not account for the tariffs, and that rather, tariffs will likely impact the April inflation report.

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The ESI’s three-day moving average began this two-week stretch at 31.9 on April 9. It then decreased to a low of 30.6 on April 10, oscillated, and then increased to a high of 32.4 on April 13. The three-day moving average then oscillated again before declining to 31.1 on April 22 to close out the session.

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The next release of the ESI will be on Wednesday, May 7, 2025.