A June 2025 Economic Update from Mary: The Good, The Bad, and The Ugly: Understanding the U.S. Economy in 2025

By Dr. Mary Kelly, PhD Economist and Leadership Strategist

I seldom post about the economy because it changes so quickly. When I speak on the economy, the programs are updated right up to the last minute before the program, so my audiences get VERY comprehensive and cutting edge information, and then they get recommendations on what to do with that information.

But lots of people are worried about the economy right now, so here is a quick update based on what I know today.

The U.S. economy entered 2025 with a bump — not a crash, not a crisis, but certainly a jolt. After three years of variable post-pandemic expansion (2022 was rough), the economy contracted slightly in the first quarter, posting a -0.2% annualized GDP decline. That number is alarming on its own (government spending was cut or planned to be cut, and government spending is part of GDP), it is an inflection point. It signals a shift. And, as always in economics, the story behind the numbers is what matters most.

Let us break it down: the good, the bad, and the ugly.

The Good: Resilience in Consumer Spending and the Labor Market

Despite the Q1 contraction, two areas continue to bolster the U.S. economy: consumer spending and the labor market. American households, ever the engine of our economy, showed surprising strength, increasing their expenditures even amid economic uncertainty. That willingness to spend is a testament to both solid job growth and persistent wage gains.

Meanwhile, the labor market remains one of the brightest spots in this economic landscape. Unemployment remains both steady and historically low at 4.2%, and job openings are still strong in several key sectors. Companies are hiring, although more cautiously, and wages, while no longer surging, are stable. This is not a recessionary labor market.

Consumers still feel they can afford to travel, eat out, and invest in their homes (Home Depot earnings are still strong), and that optimism is critical to maintaining momentum.

The Bad: Trade Deficits and Federal Belt-Tightening

The Q1 downturn was largely driven by a spike in imports and a simultaneous reduction in government spending. Businesses rushed to get goods into the country before new tariffs took effect. That flood of imports widened the trade deficit and, ironically, subtracted from GDP. (Net exports are calculated as imports minus exports.)

At the same time, federal spending took a noticeable dip. Fiscal conservatives applaud that, but a sudden pullback in government expenditures is reflected in the government spending of GDP and that lack of spending cause slow growth if private sector investment is not strong enough to fill the gap.

This double hit — more money flowing out through imports and less coming in via government programs — caused the drop in GDP.

The Ugly: Rising Debt, Higher Interest Rates, and Long-Term Slowdown

Now, let us talk about the ugly.

First, the United States is facing rising borrowing costs due to a recent downgrade in U.S. debt. When credit ratings drop, interest rates rise — not just for the government, but for businesses and consumers as well. Higher rates mean more expensive mortgages, auto loans, and capital investments.

Second, trade tensions are back. Tariffs may be aimed at boosting domestic production, but in the short term, they raise prices and complicate supply chains. Consumers end up paying more, and businesses often delay investment decisions amid uncertainty.

While 2024 ended on a strong note with 2.4% growth, projections are lower than I would like. Deloitte expects 2.2% growth for 2025 and just 1.3% in 2026. I am more optimistic, but this looks like a period of economic deceleration. This is NOT a recession, but it does mean some caution.

Navigating the Road Ahead

So, what should leaders, business owners, and consumers make of all this?

1. Plan for Slower Growth – The era of 3-4% annual GDP growth is behind us for now. Build conservative forecasts and lean into efficiency.

2. Watch the Tariff Impact – Whether you are sourcing goods or selling to customers affected by higher prices, pay attention to evolving trade policies. I have an entire hour-long program on tariffs and trade, based on the past several years of numbers and data, and I watch what actually happens instead of listening to the rhetoric, so I am more optimistic than most. But it is something to watch.
3. Monitor Interest Rates – Increased borrowing costs may impact everything from expansion plans to consumer behavior. Borrowing rates are still low with Fed rates at 4.33%, (remember the 18% in the1980s?) but leaders and households still need to be strategic with debt.
4. Stay Close to Your Customers – Consumer sentiment is mixed, and preferences are shifting quickly. The businesses that listen and adapt will win.
5. Invest in Talent – The labor market is still competitive. Retaining and developing your best people remains a strategic advantage.

The U.S. economy is not in crisis, but it is in a transition. However, I would note that we are always in a transition. We are shifting from a post-pandemic rebound into a slower, more uneven growth cycle — shaped by trade policies, fiscal restraint, and global uncertainty. The bright spots are growth and embracing change and technology, particularly AI usage in creating efficiencies and effectiveness.

The key for leaders is to continue to strategically plan and remain flexible. Strong strategy, data-driven decision-making, and leadership agility will be the differentiators. The economic winds can shift quickly, so preparedness — not perfection — is what separates the winners from the rest.