Below are the economic and market highlights for the week:
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July payrolls shook markets on Friday. The report showed that the U.S. economy added just 73,000 new jobs for the month, below analysts’ consensus estimates of 100,000. July’s number was significantly better than the downwardly revised June total of just 14,000, but the adjustments to June and May totals scratched a combined 258,000 from previously announced levels. In addition, the report showed 94% of the job growth came from just two sectors, healthcare and social assistance. The weak payrolls report pushed the unemployment rate to 4.20%. A more encompassing unemployment indicator that includes discouraged workers and those holding part-time positions for economic reasons rose to 7.90%, its highest since March. The long-term unemployed also continued to struggle as average weeks unemployed jumped to 24.1, the highest level since April 2022, while the level of those out of work for more than 27 weeks rose to 1.82 million, the most since December 2021.
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The U.S. economy bucked the gloomy tariff outlook to surprise with a 3.00% growth rate in the second quarter. That was a strong rebound from Q1’s -0.50% contraction. Growth was driven by a sharp drop in imports (which is subtracted from the GDP calculation) and a rise in consumer spending. Consumer spending, which accounts for about two-thirds of economic growth, rose 1.40%. That was up sharply from 0.50% in Q1. Q2’s gains also came despite a plunge in federal government spending, down 3.70% as DOGE cuts took effect.
July Payrolls Throw Cold Water on Market Bulls
An ugly July payrolls number threw cold water on market bulls’ summer rally. July’s report in isolation would not have been nearly as concerning had it not coincided with large downward revisions to both June and May payrolls as well. Stocks were quick to sell off on the news as the Dow Jones Industrial Average traded down as much as 790 points during Friday’s session. The set up for August was going to be difficult even without Friday’s disappointing payroll report given the strong momentum the S&P 500 and Nasdaq Composite indices exhibited in July. July’s gains were underpinned by tariff trade deals, resilient consumer spending, and strong Q2 earnings – particularly those related to AI. However, Aug. 1 offered a harsh dose of reality as new tariff rates took effect and the jobs market showed signs of cooling. The prospect of a tougher jobs market could turn the spigot off on consumer spending which was critical in Q2’s strong GDP print. Although markets were spooked by the payrolls number this morning, it is too early to tell if indeed businesses are now more cautious on hiring. The last several months have been punctuated by tariff announcements which have made it tricky for businesses to plan and invest around. A slowdown in hiring is a relatively easy way to cut back on spending as companies awaited more clarity on tariffs. The fact that we are seeing this retraction over the last 3 months coincides with Trump’s deadline extension of August 1. With a number of trade deals now settled and tariff rates now essentially set for stragglers, businesses will be able to more accurately gauge demand, set prices and reassess their hiring needs. August payrolls are likely to be better, but just how much better remains to be seen. The poor labor report may contain one silver lining in that it may induce the Fed to act more quickly than it had otherwise planned. At this week’s FOMC meeting, the Fed held benchmark rates at a range of 4.25% to 4.50%, citing concerns of potential tariff-induced inflation. But the Fed has a dual mandate of employment and inflation, and it may be prompted to cut if the employment risks accelerate faster than inflationary pressures. Yesterday, markets had essentially taken a September rate cut off the table, pricing in only a 40% chance. As of Friday’s market close, the odds shot up to 91% and the 10 year treasury note rose sharply in response. Although many pundits believe the central bank is behind the curve by not having cut already, it could opt for a 50 bps cut at the next meeting in a show of force. Two FOMC members dissented with the Fed’s decision to hold rates rather than cut rates this week, and should August’s payrolls not show some life, you’d expect the tide to shift toward easing over the next meeting or two. A big cut or series of cuts would likely get markets excited again, but in the meantime, the pullback should be a reminder that markets, despite the AI frenzy, can’t entirely ignore potential headwinds from trade, inflation and the jobs market.
The Week Ahead
Key reports include the U.S. Trade Deficit and ISM Services.
Mid-Year Money Check: Are Your Finances on Track?
We are more than halfway through 2025 and now is a good time to take stock of your financial health before the back-to-school rush and year-end holiday frenzy begin. Our advisors can help you assess how your income, expenses, and overall savings plan have progressed in the first half of the year—while still allowing time to maximize your opportunities and align them with your objectives prior to year end. Below are some steps you can take to help keep your financial life on track.
Revisit Your Retirement Plan Features and Contribution Amounts
The fundamentals of retirement plan savings are simple – maximize the amount you can put into your retirement plan, subject to your plan’s limits and your personal budget. At a minimum, you should contribute enough to your workplace savings plan, if you have one, to collect your full match from your employer. Not doing so is the equivalent of leaving money on the table. Also, since many retirement plans can only be funded with payroll contributions, you should evaluate the amount or percentage you are withholding from your paycheck in order to make sure you are hitting your savings target in the remaining pay periods you have left for the year.
Review and Optimize Your Emergency Funds
The number one rule in financial planning is to have an emergency fund. Many planners recommend having three to six months’ worth of living expenses set aside in a liquid, interest bearing account, to provide for you when life’s emergencies arise. The reality is that while most of us have money scattered around that is mentally earmarked for such situations, few have taken the time to actually measure how much would actually be necessary to live on and even fewer structure their emergency fund to maximize their return while those dollars sit idle. Your retail bank may not offer the best deal. Not all high yield savings accounts are the same. Money market funds pay tremendously different rates. Consider discussing with your advisor where you have your money parked and opportunities to maximize your return.
Beat the Year-End Custodian Crunch
Inevitably year-end, instead of mid-year, becomes the time most of us think about financial and estate planning. Attorneys scramble to produce trust documents. CPAs rush to get valuations for gifting purposes. Individuals and families embrace the holiday spirit and want to contribute to their favorite charitable organizations. Unfortunately, custodians get bottlenecked and oftentimes last-minute asset transfers cannot be satisfied. It is not uncommon to see a four-to-six-week backlog for typical requests come year end. These delays can impact qualified charitable donations of cash and securities from your tax qualified account, gifting of assets to trusts, basis step-up on death, as well as standard required minimum distributions in some cases. We encourage you to take one more future “to do” off your plate by trying to put your requests in between now and mid-October.
Review and Update Your Estate Plan
Estate plans should be reviewed and updated every five years or in the event of certain life events such as a death, birth, or marriage in the family. Documents to review include a will, guardianship directives for those with minor children, any advanced healthcare directives, and powers of attorney.
Review Your Beneficiary Designations
We recommend reviewing your beneficiary information on your IRAs and retirement plan accounts. While the transfer of non-qualified accounts, such as individual and trust accounts, are dictated by the terms of one’s trust document, will, or determination of the probate court, beneficiary designations on IRAs and retirement plan accounts often supersede other estate planning documents. There have been numerous, recent court cases in which a deceased individual forgot to change their beneficiary, and proceeds were transferred to an ex-spouse (which was subsequently upheld by the court) despite the deceased’s intent being clear to the contrary in more contemporary estate documents. A simple review or change in beneficiary form is all it takes to make sure your IRA or retirement plan account goes to those you intend.
Take Stock of College Savings
Parents who are saving for their children’s college education should review savings rates for college funds and factor in any new projections for education costs the year their children turn 18. Those who have not yet begun saving for college can consider and research education savings options, such as a tax-advantaged 529 plan, or call our office to discuss with one of our advisors.
Tidy Up Your Tax Files
Planning can go a long way when it comes to taxes. It’s a good idea to keep and maintain records of any tax-deductible expenses while it’s fresh in your mind instead of waiting until the 2026 tax season. Track and organize any out-of-pocket medical expenses, mortgage interest, and charitable contributions. A last-minute scramble could result in missing deductions.
Review Your Flexible Spending Account (FSA) or Health Savings Account (HSA)
Review your FSA benefits and usage closely as some employers don’t allow plan participants to carry balances into new plan years. Speak with your benefits manager to learn more and make adjustments based on your usage. It may also be a good time to increase your HSA contribution to reach yearly maximums. In 2025, you can contribute up to $4,300 for individual plans, and up to $8,550 for plans with family coverage. HSA rules allow you to roll over these contributions and keep them regardless of employment status, so there are no downsides to contributing beyond what you might use in a year.
A mid-year check-in with your financial advisor can help you stay proactive and aligned with your goals. Please feel free to call our office at (214) 891-8131 to schedule a meeting.