Economic Data Has Taken a Dark Turn. That Doesn’t Mean a Collapse Is Imminent.
By Lydia DePillis, The New York Times, Aug 19, 2025
Summary
The article presents the new deterioration of U.S. economic indicators: rising inflation, declining job creation, and the combined pressure of tariffs, migration cuts, and reduced public spending. Although the data show clear negative signals —wholesale prices at their highest level since 2022, downward revisions in employment reports, and a fall in industrial investment— the economists cited (BNP Paribas, Barclays) believe that the most likely outcome is a temporary slowdown and not a deep recession.
Trump’s tariffs, described as a “multifaceted storm,” are transmitted unevenly: importers temporarily absorb costs, consumers bring forward purchases, and foreign manufacturers hesitate to invest in the U.S. At the same time, the strong migration restriction reduces labor supply, which keeps unemployment stable at 4–4.2% but amplifies the risk of persistent inflation. The stagflation scenario appears as a latent threat: if prices keep rising while employment stagnates, the Federal Reserve would be trapped between stimulating the economy or controlling prices.
Five Laws of Epistemic Integrity
Truthfulness of Information
Presents verifiable data: wholesale price index, BLS revisions, consumption and employment surveys.
The figures are consistent with other recent reports (inflation from tariffs, fall in industrial investment).
Verdict: High
Source Referencing
Cites BNP Paribas, Barclays, Bank of America, Maryland Retailers Alliance, Citizens Bank.
Data complemented by surveys from the National Center for the Middle Market.
Verdict: High
Reliability & Accuracy
Balances official sources (BLS, Fed) with private sector.
Explicitly points out the uncertainty about revisions and the heterogeneity in the effects of tariffs.
Verdict: Moderate-High (risk of bias in sectoral perceptions).
Contextual Judgment
Integrates Trump’s policies (tariffs, immigration, spending) with macro indicators.
Recognizes that the stock market (AI boom) does not reflect “Main Street.”
Verdict: High
Inference Traceability
The inferences (possible stagflation, effect of tariffs on prices and wages) are supported by data and by the logic of labor supply-demand.
Well stated the condition “we are not there yet, but the risk is growing.”
Verdict: High
Structured Opinion (BBIU) – U.S. Economy, July 2025
Topic: Interaction between labor market, inflation, monetary policy, and tariff distortions.
1. Labor Market
The U-3 unemployment rate at 4.2% is within a historically “healthy” range (NAIRU 4–5%). However, the point of tension is not the absolute level but the break in trend: revisions of –258k jobs in May–June, creation in July of only +73k, and signs of exhaustion of the post-pandemic cycle.
Long-term unemployment (≥27 weeks) reached 1.826M (≈25% of total unemployed). Within this group, 65–70% are “job losers,” concentrated in manufacturing, construction, and retail, with a growing fraction in administrative services/technology affected by automation. Although this last segment is still a minority, its growth implies an emerging risk. This weight of long-term unemployment is critical: the greater its proportion, the harder it is to reduce unemployment due to hysteresis effects.
The vacancies/unemployed ratio ~1:1 indicates a tight labor market: there is no excess job supply, but neither sufficient slack to absorb shocks. In addition, with lower net immigration, labor force growth slows, which modifies the threshold of “full employment”: the effective NAIRU could be below 4%.
2. Inflation and Prices
The general CPI rose 2.7% y/y in July; core +0.3% m/m, above the Fed’s 2% target.
The breakdown shows that energy –1.1% m/m (gasoline –2.2%) and food 0.0% m/m acted as temporary anchors. However, both items are highly volatile and already showed increases in previous months, which limits the sustainability of this containment.
The PPI +0.9% m/m (highest since 2022) reflects that producer costs are rising faster than consumer prices. More than three-quarters of the increase is explained by domestic services (transport, warehousing, trade margins), while tariffs are still being transmitted partially and with a lag. The dilemma for companies is clear:
If they do not pass through: compression of corporate margins.
If they pass through: new inflationary push that will manifest in core CPI in the coming months.
This rebound is consistent with the effects of Trump’s tariff policy, which function as “imported inflation.” According to estimates from the Tax Foundation and the PIIE, the average cost of these tariffs will reach ≈$2,400 per household in 2025.
3. Monetary Policy
The Fed kept its rate at 4.25–4.50% in July, describing its stance as “modestly restrictive.”
The rebound in core inflation and the PPI reduces the probability of immediate cuts in August. The Fed will need to observe the evolution of industrial production and manufacturing PMIs, which are already below 50, to gauge whether it is a technical stagnation or a deeper contraction.
Political pressure adds institutional fragility: the departure of the BLS chief after the employment revisions and the White House’s repeated attacks on the Federal Reserve erode credibility in the data and in monetary policy.
4. Structural Factors
Immigration: the restriction of immigrant workers reduces labor supply and “mechanically” keeps the unemployment rate low, even in a context of contraction. But this same measure increases wage pressures and sustains inflation. It is a classic trade-off: a sharp jump in unemployment is avoided at the cost of price rigidity.
Investment and business confidence: tariff volatility generates uncertainty in manufacturing and foreign capital. Investment in plants fell in 2025 after several years of boom. The perception of the U.S. as a stable investment destination is weakening.
Affected sectors:
Manufacturing and construction: largest generators of long-term unemployment.
Retail: hit by volatile consumption and tariffs on imports.
Administrative services and technology: growth in automation-related layoffs, with risk of becoming long-term unemployment.
Energy and food: contained CPI in July, but their historical volatility prevents projecting future stability.
5. Interaction with Markets
Wall Street, with the S&P 500 at record highs driven by euphoria around AI, contrasts with the deterioration in the real economy.
Strategist projections (e.g. Reuters poll toward 6,300 pts) should be interpreted with caution: they do not constitute a solid basis, but speculative expectations that coexist with Main Street fragility.
The divergence between AI exuberance and macroeconomic weakness creates a classic risk of stock market overvaluation in phases of real stagnation.
BBIU Conclusion
The 4.2% unemployment rate is not alarming in itself. The problem is that behind that “healthy” number lie three structural fragilities:
Composition of unemployment: increase in long-term unemployed, concentrated in critical sectors (manufacturing, construction, retail) and with an emerging fraction in administrative services/technology.
Rising costs: PPI +0.9% shows that inflationary pressure has not yet been fully passed on to the consumer; the pass-through is imminent if companies seek to protect margins.
Institutional and political weakness: the independence of the BLS and Fed is being questioned, reducing the reliability of statistics and policy decisions.
The resulting scenario does not describe an “imminent crash,” but rather a growing risk of stagnation with persistent inflation —a partial stagflation— where the Fed is trapped:
Relax too soon = inflation risk, via PPI pass-through and wage pressures.
Tighten further = risk of accelerating long-term unemployment and weakening domestic demand.
The narrative that 4% unemployment is “healthy” is incomplete. What matters is not the raw number, but the trend, the sectoral composition, and the interaction with inflation and tariffs.
BBIU considers that the baseline scenario is a prolonged slowdown with risk of partial stagflation. The key to monitor will be the next industrial production data, the PMIs, and the speed of the PPI-to-CPI cost pass-through in the second half of 2025.
References:
📊 Labor Market
Bureau of Labor Statistics (BLS) – Employment Situation Summary, July 2025. Official source of unemployment rate (U-3 at 4.2%), payroll revisions, and long-term unemployment.
BLS Current Population Survey (CPS) microdata – Breakdown of long-term unemployed by condition (job losers, reentrants, new entrants).
LHH / Adecco Group – Reports on labor transition and AI-related layoffs, cited in NYT.
💵 Inflation and Prices
Bureau of Labor Statistics (BLS) – Consumer Price Index (CPI-U, Core CPI), July 2025. 2.7% y/y, +0.3% m/m core, energy and food breakdown.
BLS – Producer Price Index (PPI), July 2025. +0.9% m/m, highest since 2022; strong weight of domestic services.
Center for Economic and Policy Research (CEPR) – Report on persistent core inflation in U.S., 2025.
🏛️ Monetary Policy
Federal Reserve (FOMC Statement, July 2025) – Keeps rates at 4.25–4.50%, describing them as “modestly restrictive.”
Federal Reserve Monetary Policy Report (Q2 2025) – Projections of inflation and growth revised upward.
Barclays Global Research (Ajay Rajadhyaksha) – Evaluation of wage/price spiral risk.
🌍 Structural Factors and Trade
Tax Foundation (2025) – Estimate of average household tariff cost: ≈$2,400.
Peterson Institute for International Economics (PIIE) – Studies on tariff impact in imported inflation.
National Center for the Middle Market (Ohio State University) – Mid-sized business survey: expectation of lower income and employment growth.
BNP Paribas (James Egelhof, chief U.S. economist) – Higher probability of “soft patch” versus deep recession.
Bank of America – Credit card spending data, accelerated by advance purchases.
Maryland Retailers Alliance (Cailey Locklair) – Observation of early purchases due to fear of price hikes.
Citizens Bank (Mark Valentino) – Warning about tariff impact in the second half of 2025.
📰 Media Coverage and Editorial
The New York Times (Lydia DePillis, Aug 19, 2025) – Main analyzed article: “Economic Data Has Taken a Dark Turn. That Doesn’t Mean a Crash Is Near.”
Financial Times (August 2025, parallel coverage) – Note on stagflation risk and labor market sensitivity to tariffs.
Reuters (August 2025, equity poll) – Projections of S&P 500 toward 6,300 pts, reflecting optimistic expectations despite macro deterioration.
📈 Energy and Food Data
U.S. Energy Information Administration (EIA) – WTI oil price in July 2025: moderate decline vs June.
FAO Food Price Index (July 2025) – Relative stability in staple foods, after previous increases.
