Weekly Economic Outlook
Data-driven insights from the week’s economic reports
Business-focused analysis from the U.S. Bank Economics Research Group
Week of July 21, 2025
The week’s economy at a glance
June’s retail sales report showed a solid rebound, suggesting consumer demand remained resilient at the end of the second quarter in the face of higher prices and tariff-related headwinds. But a resurgence of tariff tensions – triggered by President Trump’s July letters threatening steep reciprocal rates and new sector-specific levies – is contributing to a renewed rise in policy uncertainty.
Businesses are responding to uncertainty by absorbing the costs: adjusting profit margins and postponing price hikes. This has kept the inflationary impact muted for now – as reflected in June’s Consumer Price Index (CPI) and Producer Price Index (PPI) data showing only modest increases. However, persistent cost pressures suggest that inflation could accelerate later this summer, likely keeping the Federal Reserve in a wait-and-see mode until its September meeting.
ECONOMIC DATA OF THE WEEK
0.6%
Top-line retail sales rose by 0.6% month-over-month (MoM) in June, 3.9% year-over-year (YoY) – better than what we and the consensus expected, although it follows declines in the prior two months.
ECONOMIC REPORT OF THE WEEK
Retail sales
Retail sales rebounded with a broad advance in June, helping to calm concerns about a retrenchment in consumer spending. The strength was driven by a pickup in sales at vehicle dealers, which climbed after back-to-back declines. Sales data for most other retail goods spending categories, including building materials and clothing, also showed solid gains. Spending at restaurants, the only service-sector category in the retail report, also advanced solidly.
The less-volatile ‘control group’ sales (excluding autos, gas, building materials and restaurants) – which is closely tied to GDP calculations – advanced, in line with our expectations (consensus 0.3%), by a more moderate 0.5% MoM in June (4.0% YoY), keeping to a firmly increasing trend, and consistent with the U.S. Bank Economics Research Group’s U.S. consumer transactions indicator of spend data (see chart below).
Despite healthy spending activities, consumers remain relatively glum. University of Michigan consumer sentiment inched up to 61.8, its highest level in five months but still well below its historic average. Inflation fears from trade policy is to blame with, the report noting little evidence that “other policy developments, including the recent passage of the tax and spending bill, moved the needle much on consumer sentiment.”
CHIEF ECONOMIST QUOTE OF THE WEEK
“Although the tariff war is squeezing U.S. business margins, companies continue to conduct ‘day to day' operations. However, without a clear ‘roadmap’ on what lies ahead, managers seem to be more reluctant about expansion plans – as animal spirits are apparently in hibernation. Nonetheless, for an economy that is largely domestically driven, I still see a soft but bumpy landing.”
― Beth Ann Bovino, Chief Economist, U.S. Bank
Economic trends: International trade
Quick take: President Trump’s July letters to more than two dozen trading partners – including Canada, Mexico and the European Union – have reignited his aggressive tariff agenda.
Key points
The warnings of significantly higher reciprocal tariff rates (ranging from 25% to 50%), along with newly announced sector-specific levies (e.g., on semiconductors and pharmaceuticals), could push the U.S. effective tariff rate (ETR) above 20% – the highest level since the early 1900s, if fully implemented. While we believe cooler heads will ultimately prevail, these developments are contributing to heightened uncertainty and market volatility.
Importantly, the higher tariff rates are not scheduled to take effect until August 1. This represents an extension from the original July 9 deadline and allows for additional time for negotiations that could result in new trade agreements. As a result, we believe preliminary deals – or another extension – are likely to limit further increases in the ETR, which we currently estimate at approximately 16%, up from about 3% in 2024.
Economic trends: Producer and consumer prices
Quick take: Early indications continue to suggest that higher tariffs are having only a modest impact on prices.
Key points
Last week’s reports on consumer and wholesale prices both showed persistent softness. Core CPI rose by just 0.2% MoM in June (2.9% YoY), while core PPI was flat for the month (2.7% YoY). In our view, the subdued nature of this data leaves open the questions of when, and to what extent, tariffs will drive price increases.
So far, the effects of the Trump administration’s trade war have been uneven and largely limited to goods categories. For instance, the core goods CPI registered a relatively mild 0.2% MoM in June, with upward pressures in subcategories like home furnishings offset by declines in new and used vehicle prices. Meanwhile, core services prices remained moderate at 0.25% MoM, with both tenant/owners’ equivalent rents (OER) and ‘supercore’ (core services excluding housing) inflation reinforcing the ongoing disinflationary trend this year.
Taken together, this should give Federal Reserve officials added confidence that any upcoming tariff-driven increases in goods prices are unlikely to spark sustained inflationary pressures – especially if the labor market continues to loosen. However, it’s clear that the pass-through to consumers will involve various lags, and corporate adaptability will play a key role in shaping the outcome.
Economic trends: Inflation outlook
Quick take: Although there have been only modest signs of tariff pass-through to consumer prices through June, the inflationary impact of this year’s trade tensions remains highly uncertain. Ultimately, it will depend on the magnitude of the tariffs and who ultimately bears the cost.
Key points
The prevailing view is that inflationary pressures will rise as businesses increasingly pass higher input costs on to consumers. Indeed, we expect consumer prices to increase modestly in the near term, with core CPI projected to reach 3.2% YoY by year-end 2025. Nevertheless, it increasingly appears that the full pass-through of tariffs may be delayed or dampened, as companies adjust margins, adapt supply chains, or utilize previously built-up inventories to avoid implementing price increases on their products in the near term to hold onto customers.
In fact, the July Beige Book, released last Wednesday, noted that businesses are passing on at least some cost increases to consumers through price hikes or surcharges. However, some firms have held off raising prices due to consumers’ “growing price sensitivity, resulting in compressed profit margins.” Looking ahead, companies across sectors expect cost pressures to remain elevated in the coming months, raising the likelihood of faster consumer price inflation later this summer. In our view, this will prompt Fed officials to remain in wait-and-see mode at next week’s July Federal Open Market Committee (FOMC) meeting.
Economic trends: Data and reports we’re watching this week
Quick take: The bigger market movers are out toward the end of this week. Core capital orders, excluding air and defense (Friday, 7:30 a.m. CT) and S&P Global PMIs (Thursday, 8:45 a.m. CT) will be watched to see if business investment plans weaken government policy fears. Initial jobless claims (Thursday, 7:30 a.m. CT) will gain attention as markets gauge the Fed’s next move.
Key points
Existing and New Home Sales (Tuesday, 9 a.m. CT; Wednesday, 9 a.m. CT) are expected to have mixed readings, as the weight of elevated mortgage rates, higher prices, slim inventories and low confidence due to rising anxieties over tariffs keep their trends moving mostly sideways. We expect new home sales to increase by 660,000 (consensus: 650,000), supported by a nice lift in housing starts. Existing home sales will trend lower to 4.0 million as low inventory and still high prices keep buyers on the sidelines.
Initial Jobless Claims (Thursday, 7:30 a.m. CT) are expected to increase by 14,000 to 235,000 (consensus: 233,000) in the week ending July 19. But this will not signal an imminent threat to the labor market.
S&P Global PMI (Thursday, 7:30 a.m. CT) readings for manufacturing and services are expected to be 52 and 53 points, respectively (consensus: 52.6 and 53.1), near June levels on continued caution, though still in expansion territory. A much stronger reading would point to more business optimism and vice versa. But given the weak relationship between sentiment and economic activity, only large swings will impact markets.
Core Capital Goods Orders, Excluding Aircraft and Defense (Friday, 7:30 a.m. CT), a leading indicator for equipment spending, is expected to increase by 0.2% in July on less business interest in committing to longer term expansion plans. A larger drop will further weaken the equipment component of Q3 GDP and increase worries that investment plans are weakening.
Economic data calendar this week
What we’re watching this week, including release dates and projections from the U.S. Bank Economics Research Group.
Next update: Monday, July 28
For our latest insights, read our July Macroeconomic Outlook.
If you have any questions about any of the topics above or want to learn more, please contact us to connect with a U.S. Bank corporate and commercial banking expert.
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Sources: U.S. Bank Economics, Bloomberg, U.S. Census
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