The US economy is presently facing daunting challenges on multiple fronts. Nonetheless, signs of remarkable underlying strength and resilience persist. Our latest forecast indicates reasonable growth over the next five years, although the pace will likely be uneven and backloaded in light of current uncertainty. In other words, the crystal ball is a bit cloudier than usual.

Despite a modest drop in Gross Domestic Product (GDP) in the first quarter stemming largely from stockpiling of inventories amid tariff concerns, recent performance in many indicators has been generally stable. More than 1.7 million net new jobs were added over the 12-month period ending May 2025 for an annual employment growth rate of 1.08%. There are definitive signs of weakening, but jobs data, while lower than in 2024, is reflecting some remaining momentum. The number of job openings across the economy rose slightly in April to 7.4 million.

The longer the tariff-related and other uncertainty persists, the more likely notable slowing becomes. If meaningful agreements to avoid substantial tariffs with major trading partners are not reached soon, far bigger risks lie ahead. Port volumes have begun falling, some commodity prices have spiked, and most forecasts for global trade and economic expansion have become more pessimistic.

Another source of unpredictability lies in geopolitical tensions, including the Russia-Ukraine war and the recently heightened conflict in the Middle East. Additional regions are exhibiting increasing stress, including Venezuela-Guyana, Red Sea shipping lanes, and Taiwan. A major escalation in these situations or others would negatively affect the global economy.

In better news, the most recent inflation data indicates that the overall Consumer Price Index increased 2.3% for the 12 months ending April 2025, representing an annual rate slightly lower than the prior month. The April change was the smallest 12-month rise since February 2021, and May data was similarly encouraging. The Federal Reserve has not yet decided to decrease interest rates, but if inflation and job market data begin to indicate that risks to the labor market are greater than price pressures, interest rates reductions could occur in the coming months, thus encouraging additional activity. The prospects for cost increases associated with expanded tariffs remain a consideration in the decision-making process.

Even with the current conundrums, our forecast for the next five years anticipates overall growth in GDP of more than 2.0% per year (although the next couple of years will be challenging and confidence intervals are wider than normal). Employment is projected to increase by some 12.9 million net new positions, an average annual gain of 1.57% from 2024 to 2029. Assuming that current uncertainty eases, it is probable that fundamental strengths will resurface and that the US economy will return to significant expansion. Stay safe!