UBS rings the alarm on the “dropout speed” while the economy shows signs of lack of gas

The weekly note of the US economy of the Swiss bank noted that real GDP increased to an annualized rate of only 1.2% in the first half of 2025, an important step compared to the more robust rate observed in 2023 and at the beginning of 2024. Quarter-sur-le-Quartier of growth figures to a sequential weakening, the team led by the economy Jonathan added recent in the request for a stay in the neighborhood.

The demand for labor reacts in kind. The monthly growth of the non -agitated wage bill has slowly slowed down, in July, an increase of only 73,000 jobs, well below expectations and accompanied by considerable decline revisions for previous months. The average of three months for employment gains is now only 35,000 per month, a rate described as a “dropout speed” by the vice-president of the Federal Reserve Michelle Bowman and Governor Chris Waller. (Bowman and Waller are promotional names to replace the Fed Jerome Powome Powell chair, a figure that Trump’s white house has criticized largely.) The unemployment rate checked at 4.25%, the highest level since 2021, and the widest measurement of the underuse of the workforce, known as U-6, is also a trendy-more than a percentage- pre-pale levels.

Above all, the Pingle team found that the reduction in the participation in the workforce rather than a sudden immigration or popular shock is at the origin of the growth of the lowest workforce. “The drop in the rate of participation in the active population has masked the quantity of relaxation that actually takes place,” argues the report, noting that several demographic groups, including black American and adolescents, show higher unemployment and a drop in participation.

The population growth recorded by the household survey is stable near the levels of previous years – considering the affirmations that strict immigration is significantly constantly constantly constructed the labor market. UBS notes that this contradicts Jerome Powell’s statements: “Despite the Powell Presidency Declaration at the post-FOMC press conference that the slowdown in immigration slowed down population growth and therefore the growth of the workforce, which is not what is happening in real data. The household and establishment survey is more like the labor market, and the household survey itself that population growth does not slow down. ”

The average work week remains moderate, sitting at 34.25 hours in July – the 2019 membership levels and far from typical “stretching” when the labor markets are tight due to workers’ shortages. Industry data show that job losses are not concentrated in sectors with a large immigrant workforce, supporting the opinion that Slack comes from weakened demand, not from a supply constraint.

Prices placed to climb, threatening more drag

The pricing policy, after a series of negotiations and executive actions, is on the right track to become even more restrictive. The new suite of reciprocal prices, including a rate of 35% on Canadian imports (excluding goods in accordance with USMCA) and increases in all plants affecting nearly 70 countries, should increase the weighted average rate rate (WATR), from around 16% to around 19% at the beginning of August. UBS estimates that this will subtract 0.1 to 0.2 percentage point of growth over the next year.

The sectoral sculptures persist, but with the EU, faced at a price of 15% on most exports to the United States – later than originally proposed, but always a significant increase – Subs provides direct pressure on the prices of cars, semiconductors, pharmaceuticals, and more. The presidential proposals to slap a 200% rate on pharmaceutical products remain under discussion, but would have massive implications if they were implemented.

Rate cutting on the horizon

With the evidence amounts that growth and labor markets soften and that prices can still pass central inflation from 2.8% currently to 3.4% by the end of the year, the pressure is based for the Federal Reserve to facilitate monetary policy. While President Jerome Powell has kept a possible September rate drop on the table, he offered little advice before, declaring that all of the incoming data will dictate the next movement. UBS argued that the Federal Open Market Committee would reduce the rates of 25 base points in September and 100 base points before the end of 2025.

In the end, the bank noted that the American economy entered a clear slowdown in 2025, with the discoloration of the inner momentum, the growth in cooling and the shadow of higher rates likely to mitigate the prospects. UBS researchers argue that the data show a deceleration focused on demand, not compressing the supply, and that the Fed will probably act soon to amortize landing.

For this story, Fortune Used a generative AI to help an initial project. An editor checked the accuracy of the information before the publication.