U.S. Department of the Treasury

Introduction

Recent data suggest that U.S. economic growth resumed in the second quarter of 2025 and likely fully recovered from the modest headwinds that appeared in the first quarter.  Monthly readings of payroll job creation were consistently stronger in the second quarter, and the unemployment rate has remained historically low at just over 4 percent.  As of June, a total of 671,000 payroll jobs have been created during the first five months of this Administration.  In addition, most inflation readings were stable-to-lower in the second quarter, with the exception of energy prices, which trended up against a backdrop of increased volatility.  However, key drivers of inflation in recent years, such as inflation for housing and core non-energy services, continued to moderate.  An expected pickup in productivity growth also should help dampen inflationary pressure.  Overall, economic data for the second quarter point to stronger growth and a pick-up in job creation, coupled with signs of relatively stable inflation despite earlier concerns of a tariffs-induced increase in the price level. 

Real Gross Domestic Product (GDP)

Official data on real GDP growth in the second quarter will not be available until Wednesday, July 30.  Nonetheless, available high-frequency data suggest that growth likely rebounded markedly in the second quarter.  According to the most recent publicly available survey (the Wall Street Journal quarterly survey published on July 12, 2025), the median forecast for second-quarter GDP growth was 2.3 percent at an annual rate – a solid swing from the 0.5 percent decline in the first quarter.  Meanwhile, estimates of forecasters at the 25th and 75th percentiles ranged from 1.6 percent to 2.7 percent.  This survey closed on July 8, after the passage of the One Big Beautiful Act fiscal bill on July 4, as well as after President Trump’s announcement on July 7 of an extension of the delay in modifying reciprocal tariff rates (previously due to expire on July 9) until August 1.  The Q1 GDP figures already produced a large increase in capital expenditures, likely the results of the retroactivity aspects of the One Big Beautiful Bill.  Further gains in such outlays should provide additional positive impetus to productivity growth.

Labor Markets

Labor market data was balanced in the second quarter (see Table 1 – Labor Market Indicators). Monthly job growth notably picked up on average, while the average unemployment rate ticked up only slightly and the average headline labor force participation rate (LFPR) ticked down.  Other labor market measures continued to show modest slowing at the margins. The drop in headline consumer price inflation led to a large first half increase in real wages, which will underpin second half consumption expenditures.

• Total payroll job growth accelerated to an average 150,000 per month during the second quarter of 2025, after averaging 111,000 per month during the first quarter. Private sector job creation also increased.  Although job growth has slowed over the years from the outsized gains immediately following the pandemic, the pace of hiring remains more than adequate to meet the needs of a growing economy, leading to relatively stable unemployment rates.

• Over the past fourteen months, monthly unemployment rates have fluctuated within a narrow range of 4.0 percent and 4.2 percent.  In the first quarter, the unemployment rate averaged 4.1 percent per month, then ticked up to an average 4.2 percent in the second quarter.  These rates are near estimates by the Congressional Budget Office of the non-cyclical unemployment rate—or the rate of unemployment that is consistent with stable inflation and excludes fluctuations in aggregate demand.  As of June 2025, the unemployment rate ticked down to 4.1 percent, remaining well within the range seen since May 2024.

• Labor force participation ticked down in the second quarter.  After remaining stable at an average of 62.5 percent per month during the previous two quarters, the overall LFPR eased to an average of 62.4 percent in the second quarter.  At the end of the quarter, the rate declined to 62.3 percent, the lowest reading since December 2022.  However, the LFPR among prime-age workers—that is, ages 25 to 54 years old—increased to an average 83.5 percent in the second quarter.  In fact, since February 2023, prime-age participation has proven consistently solid, remaining above 83 percent and averaging 83.4 percent since then. This is 0.3 percentage points above the peak just before the pandemic. Among prime-age men, the average LFPR rose 0.2 percentage points to 89.4 percent in the second quarter, matching the high just before the pandemic.  Although participation among those aged 55 or older held steady at a monthly average of 38.2 percent throughout the second quarter, the LFPR for this cohort slipped to 38.0 percent in June, an eighteen-year low.  The downtrend since early 2022 has been expected and reflects broader demographic trends as Baby Boomers retire.

• In the second quarter, measures of labor demand remained relatively stable.  During the first quarter, there were an average of 7.5 million job openings per month.  During April and May (latest available data), this average rose to 7.6 million.  So far in 2025, the level of job openings has increased by 261,000 from the end of 2024. The ratio of job openings (or vacancies) per unemployed worker declined somewhat to an average 1.07 during the first quarter, then remained very near that level, averaging 1.05 vacancies per job opening during April and May.

   

All told, labor markets remained sound and relatively stable in the second quarter, albeit against a backdrop of the anticipated longer-term easing of labor demand and supply.

Inflation

On balance, signs of rising inflationary pressures were limited in the second quarter (see Table 2 – Inflation Indicators).  As of June 2025, twelve-month inflation—as measured by the headline consumer price index (CPI)—had trended up to a rate of 2.7 percent, but this increase was partly due to base effects—that is, prices were unexpectedly flat in May and June 2024 before rates of growth steadily picked up through January 2025.  Since January, readings have been more moderate and are just above the target rate for U.S. monetary policy: second quarter inflation was 2.4 percent at an annual rate, slowing from the 2.6 percent rate in the first quarter. Tariffs have yet to have any noticeable negative effects on the aggregated price data.

• CPI inflation for energy goods and services accelerated in the second quarter to an average 0.2 percent per month, after declining by an average 0.4 percent per month in the first quarter.  Energy prices have increased in two of the past three quarters. 

• On a monthly basis, food price inflation resumed a slowing trend in the second quarter. After rising by 0.3 percent, on average, during the previous two quarters, food inflation slowed to an average 0.2 percent per month in the second quarter.  On a twelve-month basis, however, food price inflation was 3.0 percent at the ends of both the first and second quarters. 

For the second consecutive quarter, monthly core CPI inflation averaged 0.2 percent.  On an annualized basis, core inflation was 2.4 percent in the second, much slower than the 3.0 percent rate in the previous quarter.  Over the twelve months through June 2025, the core inflation rate ticked up to 2.9 percent but was 3.7 percentage points below the post-pandemic peak rate in September 2022.

• Core goods prices increased 0.1 percent on average per month in the second quarter, matching the rates in the previous two quarters.  Core goods inflation began an uptrend in late 2024, and the CPI for core goods was 0.7 percent higher over the year ending June 2025.

• Inflation for rent of housing services (rent of primary residence and owners’ equivalent rent) remained at an average 0.3 percent per month in the second quarter, where it has held for the previous two quarters.  Prior to the final quarter of 2024, rent of housing services inflation had largely ranged between 0.4 percent and 0.5 percent—save for two months—since May 2023.  Further disinflation for rent prices is expected in coming quarters.  Over the year through June 2025, rent of housing inflation was 4.1 percent, the slowest pace since January 2022.

• Inflation for non-housing core services has stabilized at a slower rate this year, after averaging 0.3 percent per month in the latter half of 2025.  In the first and second quarter, non-housing core service inflation was 0.2 percent.  The slowing largely reflects normalization of auto insurance rates as well as a drag from airline fares.

   

Inflation as measured by the PCE price index has notable differences in weights and methodologies versus the CPI.  Over the past 20 years, twelve-month CPI inflation has exceeded PCE inflation by about 0.36 percentage points on average.  Over the year through February 2025, the headline PCE price index was up 2.7 percent.  However, over the year through May 2025, PCE price inflation had slowed to 2.3 percent, or just 0.3 percentage points above the Federal Reserve’s 2 percent inflation target.

Risks to the Outlook

The Wall Street Journal’s quarterly survey of economists provides recession probability estimates.  In the July survey, economists assessed a 33 percent chance of a recession in the next twelve months, down from the 45 percent chance indicated in the April survey.  In addition to revising up their growth projections, economists forecast lower inflation and a stronger pace of job creation than in the April survey.  Even so, Treasury monitors both downside and upside risks carefully.

Labor markets: While labor markets appear healthy in aggregate, some concerns persist.  Hiring according to the Job Openings and Labor Turnover Survey remains slow for this stage of an expansion.  Since November 2023, the private-sector hires rate has held below 4.0 percent, comparable to the rates observed in the slow-recovery period of 2013.  During the first Trump Administration, the private hires rate averaged 4.2 percent until the pandemic.  On the other hand, layoff rates also remain low.  The private-sector layoff and discharges rate was just 1.1 percent in May 2025 (latest available data), below the average of 1.3 percent during the first Trump Administration. Through the second quarter of 2025, private firms appeared to be in a holding pattern—that is, unwilling to make major personnel changes until policy uncertainty had passed.  Since June, however, tax policy uncertainty has been eliminated with the passage of the One Big Beautiful Bill and trade policy uncertainty is being further reduced with each trade agreement that remedies unfair trade practices that have hurt domestic firms and workers. Strong capital spending outlays typically precede a step-up in hiring. The renewed declines in initial jobless claims point to a strengthening in second half labor demand. 

Household finances: Households appear to be in an excellent financial health in aggregate.  Total household assets were up 3.5 percent ($6.4 trillion) over the year ending in the first quarter of 2025 (last available data), largely driven by growth in the value of corporate equity holdings.  Stock markets have reached new record highs recently.  As of Tuesday, July 22, the S&P 500 index was up 7.3 percent since the end of 2024, the NASDAQ Composition rose 8.2 percent, and the Dow Jones Industrial Average increased by 4.6 percent. Digital assets have recently made new record highs and nationwide home prices are close to record readings.  As middle- and higher-income households are more likely to hold financial, other and real assets—a key driving force behind aggregate household spending since the pandemic—household consumption has a strong foundation for continued growth.

On the other hand, the New York Federal Reserve Bank reported that aggregate delinquency rates rose in the first quarter.  The percent of all balances that were severely delinquent (90 days or more overdue) increased from 2.04 percent to 2.84 percent. However, this largely reflected a return to pre-pandemic policy in which the federal government reported missed student loan payments to credit bureaus.  Between the second quarter of 2020 and the last quarter of 2024, the federal government did not report missed student loan payments.  Excluding student loans, newly delinquent balances were slightly lower for automotive loans and credit cards and slightly higher for mortgages and home equity loans—suggesting financial strain is limited at this time.

Conclusion

Thus far in President Trump’s second term, the Administration has successfully stewarded major fiscal legislation to prevent a historic tax increase, control federal spending, and incentivize productive business investment.  Meanwhile, ongoing trade negotiations are transforming trade relationships, which will put American citizens first and prevent other countries from taking advantage of the openness of our economy.  Moreover, supply-side policies, deregulation, and other reforms will protect the American consumer from high inflation, supply-chain disruptions, and the destabilizing potential of geo-political strife while freeing up investment funds for more productive uses and encouraging a significant increase in domestic energy production.  In just a short six months, the Administration has made extensive progress to enact an agenda that will bring prosperity to all Americans. 

Table 1 - Labor Market Indicators

Table 2 - Inflation Indicators