A Summer 2025 Economic Update: The Good, the Bad, and the Ugly — Understanding the U.S. Economy Right Now

Written by: Dr. Mary Kelly, Economist and Leadership Strategist, CEO of Productive Leaders

People are concerned about the economy. I get questions every week: “What’s happening with the economy?” “Are we headed for a recession?” “Is now a good time to invest?  “Should I hire and develop my people?” “Is there room in the market for expansion?”

Here’s where we are right now. This is a quick, clear breakdown of what’s going well, what’s not, and what you need to watch.

The Good: Consumers and the Labor Market are Still Strong

Despite a shaky first quarter, two core strengths are keeping the U.S. economy upright: consumer spending and the labor market.

Consumers are still (cautiously) spending. Households—bolstered by steady wages and job security—are still buying, traveling, and renovating. That momentum matters. This is measured by the University of Michigan’s Consumer Sentiment, and it shows that Americans are still spending.  When Americans feel secure, they spend, and that keeps the economic engine running.

The labor market remains resilient. Unemployment is holding at a historically low 4.2%, and while job growth has slowed, it’s still positive. Wages have leveled off, but they remain stable. We are not seeing broad layoffs or a collapse in hiring. Many industries still struggle to find qualified talent. The job market is good.

Retail, hospitality, and home improvement sectors (like Home Depot and Lowe’s) continue to post strong earnings. People still feel they can afford dinners out, summer travel, and home upgrades. That confidence matters more than most government forecasts.

The Bad: Trade Deficits and Fiscal Tightening Creates Drag

We are not in recession territory, but the Q1 GDP contraction of -0.2% caught some people’s attention. Why? Two issues:

A widening trade deficit. Businesses rushed to import goods ahead of anticipated tariffs, pushing import levels up sharply. Because GDP subtracts imports from exports, that move actually reduced growth on paper, even though companies were trying to stay ahead of policy shifts.

Federal spending pulled back. Government spending is a part of GDP, and when the government cuts spending, (which needs to happen, although you may not like where or how that happened) that loss of government spending removed a bit GDP from the economy. Unless private investment fills that gap, the economy slows.

Am I concerned about that?  No. The takeaway? These aren’t structural issues, they’re policy timing issues with short-term consequences.

The Ugly: Interest Rates, Debt Pressures, and Long-Term Caution

Here’s what’s harder to digest:

Rising debt and downgraded credit ratings are pushing up borrowing costs. When the U.S. pays more to borrow, so does everyone else, and that includes businesses, municipalities, and households.

Interest rates are sticky. The Fed’s rate is at 4.33%. That’s still a very low interest rate.   Remember the 18% days in the 1980s?  But it’s high enough to chill some borrowing for homes, cars, and capital projects. Companies are thinking twice about expansions. We were spoiled for years by even lower rates than that, and the Fed just announced they are holding steady for now and probably into the fall.

Global trade tensions are back. New tariffs are increasing the cost of goods, snarling supply chains, and prompting uncertainty. It’s tough for businesses to plan investments when they’re unsure what tomorrow’s costs will look like. Even the tariff offices are confused on who is supposed to be paying what.  Confusion is unproductive. 

Growth forecasts are softening. OECD says 1.6% growth for 2025, Deloitte projects 2.2% growth for 2025 and just 1.3% for 2026. While I’m slightly more optimistic moving into 2026, (thanks to consumer confidence and technological advances), I agree we’re heading into a slow-growth cycle.

This is not a recession. It’s a recalibration and that is normal in an economic cycle. But it’s something that requires awareness, agility, and smart planning.

What Savvy Leaders Should Do Now

So, what should business owners, managers, and leaders actually do with this information?

Plan for Slower Growth

Forecast conservatively. Scale with discipline. Look at every expense and every investment through a lens of strategic ROI.

Track Tariff Impacts

Whether you’re importing materials or selling to customers impacted by price increases, you need to monitor evolving trade policy.

Watch Interest Rates

If you need to borrow, either personally or professionally, make sure the terms make sense long-term. Refinance when appropriate and avoid overextending.

Stay Close to Your Customers

Buyer preferences are shifting fast. Keep listening. The companies who stay nimble and attuned to customer sentiment will capture the most opportunity.

Invest in Talent

The labor market is still competitive. Your best people need reasons to stay—growth, purpose, and culture. Develop your bench and strengthen succession plans.

Final Thoughts: This is Time for Leadership

The economy is not in crisis.

We’re shifting from a post-pandemic surge into a slower, more nuanced phase. There are still opportunities, and to maximize them it requires precision, data, and courage.

Leaders who stay informed, make smart strategic moves, and stay flexible will thrive.

Our businesses don’t need perfection, they need preparedness. Let’s plan smarter and lead better.

Mary Kelly is the CEO of Productive Leaders. She is found at Mary@ProductiveLeaders.com.