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