This industry report equips U.S. businesses with a clear outlook on the near-term path for growth, inflation, labor and policy. Real GDP ran near 1% per quarter through H1 2025, with rising tariff costs and Washington uncertainty set to weigh on capex and spending.

The picture is mixed: slower but positive growth, sticky-to-reaccelerating inflation, and a cooling labor market that still supports demand. The Fed is positioned to be patient, with one modest rate cut likely in December and more easing into early 2026.

We show how tariffs, immigration limits, and fiscal choices affect costs and competitiveness. The report uses official indicators and market signals to build an evidence-based outlook that helps leaders plan resilient strategies for the market ahead.

• Expect modest growth and intermittent headwinds from tariffs and policy uncertainty.
• Inflation may reaccelerate before easing; plan for cost and pricing pressure.
• Labor is cooling but still supports consumer demand; monitor payroll and unemployment data.
• One near-term Fed cut could ease financing; scenario planning for 2026 remains vital.
• Use data-driven scenarios to protect investment and capital planning against downside risks.

The U.S. economy is moving forward unevenly, with clear upside and downside signals. Real GDP ran near 1% per quarter in H1, and forecasts point to 1.0% in Q3 and 0.5% in Q4.

Inflation shows renewed momentum: core PCE was 2.7% in May and could reaccelerate before easing later in the year. CPI strength in services and shelter keeps prices under watch.

Labor is softer but not collapsing. August payrolls rose just 22,000, unemployment edged to 4.3%, and wages slowed to 3.7% y/y. Job openings hit a low last seen in September 2024.

• Growth remains below trend; recession is not the baseline.
• Near-term inflation risks lean upward due to tariff passthrough and services strength.
• Labor market cooling is uneven: health care and leisure hire while construction and manufacturing lag.

Watch monthly CPI/PCE prints, payrolls and claims, and retail sales. These indicators will show if demand and prices keep firming or if cooling takes hold.

This section explains how we build a rigorous, data-dependent outlook. We combine official releases, market pricing, and institutional forecasts to create timely signals for business decision-making.

We use high-frequency macro releases and subsequent revisions to triangulate turning points across inflation, labor, and spending. Daily and weekly reads help flag inflection points faster than monthly snapshots.

Official government series from the BLS and BEA are cross-referenced with private-sector sources to validate direction and add sector detail. That blend improves confidence in sectoral moves, especially where services and goods diverge.

Market-implied probabilities from Treasury yields and fed funds futures capture forward-looking policy and monetary conditions. These are folded into scenario weights to reflect likely policy paths.

Scenario development pairs institutional baselines with alternative assumptions on tariffs, immigration, and capex. Sectoral disaggregation informs operational guidance for payroll, inventory, and pricing choices.

We update this report on a regular cadence as new releases arrive, preserving a data-first stance aligned with market leaders and practical for U.S. firms planning in the near term.

U.S. activity is advancing at a modest clip, shaped by sector gaps and policy unknowns.

Growth is projected near 1.0% in Q3 and slows toward 0.5% in Q4. That path signals expansion, but below trend for many industries.

Inflation shows renewed momentum as services and shelter exert pressure while goods ease. Tariff passthrough and firm service demand complicate the disinflation path.

Labor data point to cooling: August added 22,000 jobs and unemployment rose to 4.3%.

Key service sectors remain resilient, even as overall hiring slows. Businesses should watch payrolls and wage reads for signs of faster deterioration.

“Supportive market conditions coexist with tighter household budgets due to higher debt servicing and rising delinquencies.”

Policy and trade uncertainty — including tariff moves and immigration limits — creates cross‑cutting cost and hiring effects that weigh on consumer purchasing power.

• Supportive financial markets ease funding for firms.
• Household strain and higher prices tighten real demand.
• Flexible planning and scenario analysis remain essential for business leaders.

Quarterly activity is slowing but still aligns with a soft‑landing scenario for the U.S. economy. Forecasts project Q3 at 1.0% and Q4 at 0.5%, after H1 averaged about 1% per quarter.

EY projects real gdp growth near 1.7% in 2025 and 1.4% in 2026, with Q4 2025 easing to roughly 1.2% year‑on‑year. This path signals below‑trend expansion rather than contraction.

Recession risk has risen but remains below 50% over 12 months. Stable payrolls and steady income flows help keep downside odds muted despite softer momentum.

Higher input costs and tariff uncertainty are reducing expected returns on new projects, causing firms to delay investment decisions. Elongated sales cycles and stricter hurdle rates are shrinking near‑term approvals across industries.

Export softness and trade frictions limit external demand, increasing reliance on domestic spending. Monitor orders, inventories‑to‑sales ratios, and capex surveys as leading indicators of sequential growth moves.

• Watch orders: early sign of demand shifts.
• Inventory-to-sales: signals stock adjustments and production pacing.
• Capex surveys: reveal changing investment intent.

For business leaders: stress‑test investment plans against elevated policy and tariff uncertainty and keep scenario triggers under review to preserve flexibility in a slower growth environment.

Price momentum has shifted higher in recent months, driven by services firmness and rising import costs. Core PCE stood at 2.7% in May, yet short-term annualized measures could spike toward 4.6% in Q3 before easing later in 2025.

August CPI confirmed a reacceleration, with shelter and services leading. Core PCE remains above the Fed’s 2% goal, keeping policy makers alert to renewed inflationary pressures.

Goods disinflation has softened, but tariffs can push import costs higher. Passthrough works two ways: direct tariff markups on imports and indirect supply chains effects that lift domestic prices later.

Wage growth slowed to 3.7% y/y in August, still above inflation now but at risk if price gains outpace wages. That squeeze would cut real income and reduce demand for discretionary spending.

Actions for businesses

• Strengthen pricing governance and test tiered increases.
• Hedge key inputs and diversify suppliers to limit tariff exposure.
• Communicate clearly with customers about necessary price moves to retain loyalty.

August payrolls rose by 22,000, reflecting a shift from broad hiring to selective additions across the economy.

Health care and social assistance led with +46,800, and leisure and hospitality added +28,000. Other sectors showed declines: manufacturing −12,000 and professional/business services −17,000.

The unemployment rate moved to 4.3%, the highest since October 2021. That rise signals cooler hiring demand even as employment in certain services stays resilient.

Wage growth slowed to 3.7% year‑on‑year. Participation rates show modest shifts, with lower-skilled roles feeling the greatest pressure.

Job openings fell to a 4.3% rate in July, the lowest since Sept 2024, pointing to easing demand but not a collapse.

Foreign‑born workers are 19.5% of the U.S. labor force, and slower immigration growth tightens supply for entry‑level roles in several industries.

“Companies should prioritize selective hiring, upskilling, and targeted retention to balance costs with capability needs.”

Practical guidance for companies

• Use selective hiring and redeployment before broad recruiting.
• Invest in upskilling for mid‑level roles to reduce turnover.
• Monitor openings and wages monthly to time workforce moves.

The Federal Reserve is navigating a narrow path between cooling jobs and persistent price pressures.

The Fed is positioned to be patient. Markets expect a 25bp move in December that would bring the federal funds range to 4.00–4.25%, with additional easing into early 2026.

Market pricing shows high odds of multiple cuts by year‑end, but the Federal Open Market Committee remains data dependent. Dispersion within the FOMC widens the uncertainty band for the policy rate and timing.

Financial conditions are the loosest since Nov 2021, which eases borrowing costs and supports credit availability across sectors. At the same time, reaccelerating inflation keeps the Fed cautious.

“Data dependence remains the central plank of Fed communications.”

Practical moves for businesses: hedge interest exposure, optimize cash placement, and time refinancing when rates and spreads align with your risk tolerance.

Tariff shifts are forcing companies to choose between shrinking margins or higher sticker prices for customers. That choice affects profitability, hiring, and demand elasticity in different ways.

Cost absorption erodes margins and can force firms to cut costs or delay hiring. Passing tariffs through raises consumer prices and may reduce volumes, especially for price-sensitive goods.

Evidence shows uneven passthrough across categories: durable goods and imported inputs see quicker price moves, while many services show delayed effects when they rely on traded equipment.

• Manufacturing and durable-goods sectors face direct tariff exposure; nearshoring or re-sourcing can help.
• Retailers should use pricing segmentation and temporary surcharges to protect margins.
• Services relying on imported capital equipment will feel second-order price pressure; budget for higher maintenance and replacement costs.

“Plan for tariff volatility: combine pricing discipline, supply redesign, and targeted hedges to sustain competitiveness.”

Retail receipts showed steady nominal gains in August, but underlying volume growth tells a quieter story. Retail sales rose 0.6% month‑over‑month with only modest real volume improvement. Tariff‑linked price increases have absorbed much of the nominal lift, especially for lower‑ and middle‑income households.

Nominal consumer spending is holding up, but real purchases grew only slightly. Higher sticker prices mean households buy fewer units even as receipts rise.

Wage growth of 3.7% y/y still outpaces inflation for now, which supports purchasing power. Yet rising delinquencies and renewed student loan payments weaken the buffer for many families.

Credit card delinquencies sit near their highest since about 2011 and auto loan delinquencies are climbing. The end of the student loan moratorium adds immediate repayment obligations that can curb discretionary spending over coming months.

“Monitor revolving credit use and repayment behavior—these are early signals of shifting demand.”

Categories most at risk include big‑ticket durables and discretionary services for price‑sensitive cohorts. Higher‑income consumers are sustaining gaps in dining and travel, while lower cohorts pull back on nonessentials.

• Protect volumes with mix management and value packs.
• Use targeted promotions to retain share without broad discounting.
• Watch revolving utilization and delinquencies as lead indicators.

Firms are tightening approval rules for new projects as policy shifts and higher borrowing costs raise required returns.

Hurdle rates, financing costs, and visibility on policy now dominate capital decisions. Companies reprioritize to projects with clear, near-term paybacks.

Selective capex is concentrated on automation, AI, and efficiency upgrades that cut labor and input costs.

This investment often decouples from hiring: tech outlays rise while broad recruitment cools. That reflects a focus on productivity rather than headcount growth.

Boards and finance teams are adopting dynamic portfolio reviews and scenario-weighted NPVs.

• Run sensitivity tests for tariff and supply risks.
• Re-score projects as rates and policy signals evolve.
• Prefer staged approvals with clear go/no-go triggers.

“Prioritize projects that sustain margins under higher rates and policy uncertainty.”

Financial markets show ample liquidity, even as many households tighten their budgets.

The Chicago Fed’s National Financial Conditions Index points to the most favorable institutional funding since November 2021. That ease in market funding supports lending capacity and narrows spreads for many firms.

In contrast, household credit stress is rising. Credit card and auto loan delinquencies are up, and student loan payments have resumed. Those forces squeeze discretionary spending and weaken demand at the consumer level.

Bank and nonbank channels matter. Banks tightened underwriting after earlier shocks, while nonbank lenders expanded credit where they saw higher yields.

Looser market funding lowers interest costs and helps firms refinance. Yet tighter bank standards can offset that effect for small businesses and consumers.

Favorable markets do not guarantee strong retail demand. Easy funding can lift asset prices and corporate liquidity while real household finances deteriorate.

“Top-down liquidity can mask bottom-up weakness—track payment behavior, not just spreads.”

Practical steps for firms:

• Monitor cohort payment performance and adjust credit offers.
• Align promotions to groups showing stable repayment patterns.
• Use pricing flexibility: test targeted discounts rather than across-the-board cuts.
• Tighten inventory turns and favor SKU mixes that preserve margin under weaker spending.

August’s payrolls show a split: services continue to expand while many goods sectors cut staff.

Health care and social assistance added +46,800 jobs and leisure/hospitality added +28,000. That hiring supports steady consumer demand for care and travel‑related services.

Prices in travel and some elective care remain firm, enabling companies to protect margins where utilization stays high.

Information fell modestly (−5,000) but posts the highest job openings rate. That gap signals ongoing digital and AI investment even amid selective layoffs.

Manufacturing (−12,000) and construction (−7,000) show weakness tied to trade uncertainty, higher input costs, and tighter financing conditions.

Professional/business services cut −17,000 jobs even as openings stay elevated—reflecting pipeline pauses and retooling of teams.

Sector actions

• Hospitality: use flexible staffing and short-term contracts to match demand swings.
• Manufacturing: accelerate automation and diversify suppliers to curb cost pressure.
• Professional services: focus on pipeline management and staged hiring tied to billable work.

Shifts in government signaling are changing risk premia and the calculus for large projects. That uncertain backdrop affects financing costs, export planning, and the timing of capital deployment.

Delayed fiscal implementation can lift term premia and tighten market liquidity, making borrowing pricier for companies. Higher sovereign debt paths raise uncertainty and reduce risk appetite, which often delays capex and hiring.

Clear moves on deregulation could unlock investment and hiring in 2026 by lowering compliance costs and boosting confidence. Firms should map likely regulatory rollbacks to project ROI and workforce plans.

Ongoing trade negotiations can change tariff schedules and cross‑border rules, altering supply chains and margins. Policy uncertainty feeds market volatility, which then prompts firms to defer large outlays.

• Watchlist: fiscal bill implementation dates, debt auctions, major trade agreement milestones, and key administrative rulemakings.
• Advice: engage regulators early, maintain compliance readiness, and use targeted advocacy to reduce policy risk.

A sharp downside map helps firms see how policy shocks and price moves can spread through operations.

Rising tariffs can reaccelerate costs via goods passthrough, lifting consumer prices and squeezing margins. Firms that absorb these costs risk trimming hiring and cutting investment.

Stickier inflation in services amplifies that effect by keeping input costs high while real wages lag.

Trade frictions already weakened openings in manufacturing and durables. Geopolitical shocks can disrupt logistics lanes and raise insurance and freight costs, creating second‑order effects on confidence and credit spreads.

• Primary vectors: tariff escalation, services inflation, faster labor cooling.
• Second‑order effects: compressed corporate margins, lower consumer confidence, wider credit spreads.
• Triggers to watch: CPI/PCE breadth, wage trackers, continuing claims, and new orders surveys.

Governance: prioritize cross‑functional risk teams, maintain liquidity buffers, and set clear triggers to speed responses when shocks materialize.

Translate near-term uncertainty into clear decision rules. Use three scenarios to set probabilities, financing assumptions, and operational playbooks that leaders can execute over the coming months.

Baseline (50%): below‑trend growth in H2 (Q3 1.0%, Q4 0.5%), one 25bp cut in December and easing into 2026, inflation above 2% near term from tariff passthrough. Business implication: moderate pricing actions, selective hiring, staged capex approvals.

Downside (30%): stronger tariff passthrough, weaker hiring, tighter household credit. Financing costs rise as spreads widen. Trigger indicators: broadening inflation breadth, payroll momentum faltering, retail sales volumes falling. Action: halt nonessential capex, strengthen liquidity, deploy targeted promotions.

Soft‑landing (20%): steady disinflation and resilient employment. Rates fall faster; borrowing eases. Implication: accelerate productivity projects, opportunistic M&A, measured hiring.

• Link policy and interest rates to hurdle rates and refinancing timing.
• Set thresholds for payrolls, claims, CPI/PCE breadth, and retail volumes to flip scenario weights.
• Adopt pre‑approved playbooks for inventory, procurement, and promotions by scenario.

“Integrate scenario outcomes into rolling forecasts and board risk appetite to act quickly when data shifts.”

Operational resilience—pricing, sourcing, and workforce design—will determine which companies gain share in 2025–2026.

Act quickly: set clear decision triggers tied to CPI, payrolls, and import price moves so the firm can shift from planning to execution without delay.

Adopt a tiered pricing architecture that separates strategic from transactional items. This lets firms pass through tariff-driven increases selectively while defending share on core lines.

Optimize inventory with demand sensing and modest buffer stocks for tariff‑sensitive SKUs. Diversify suppliers to reduce single‑lane risks across supply chains.

Match hiring to revenue signals: slow broad recruiting, prioritize upskilling, and expand automation where it improves unit economics. Calibrate wage budgets to retain key staff while protecting margins.

Plan capital structure and liquidity with the probability of declining interest rates in mind. Sequence refinancing, hold liquidity buffers, and favor productivity investment that lowers exposure to input price swings.

“Prioritize investments that raise productivity and reduce sensitivity to input volatility.”

Expect mixed signals ahead: below‑trend growth, renewed inflation pressure from tariffs, and a cooling but stable labor backdrop will define the year for U.S. firms.

The Fed’s path looks gradual, with one near‑term cut and easing into 2026, so plan around slower moves in rates and stay data‑driven in hiring and investment.

Policy and trade decisions remain pivotal for costs and margins. Tariffs can lift input prices quickly and force hard choices on pricing or margin management.

Operationalize scenario planning, strengthen pricing governance, and diversify suppliers to preserve resilience. Keep flexibility and disciplined execution to navigate the outlook and protect performance through the year.