GDP growth slowing but no recession in sight

Even with inflation easing, the tariff war paused and the labor force at full employment, the U.S. gross domestic product is expected to grow by only 1.6% for 2025 – more than 1 percentage point below the 2.8% growth rate in 2024.

The Conference Board said during a webinar this week that the 1.6% projected GDP growth rate is up slightly from the 1.2% growth rate the board predicted in April – when President Donald Trump first announced a broad set of tariffs on trading partners.

Since that announcement, the Trump administration has put a 90-day pause on most of the tariffs it proposed. The Conference Board said its revised GDP growth projection for 2025 is based on the current levels of tariffs remaining in effect until the end of the year.

“We expect a significant slowdown in economic growth – both quarter over quarter and year over year,” said Yelena Shulyatyeva, The Conference Board’s senior U.S. economist. “This is a problem. When you see a slowdown of 1% in GDP growth, history tells us employment is negative.”

Unemployment inching upward

Tariffs could impact the labor market by the end of the year, Shulyatyeva said. The unemployment rate for April was 4.2% with 7.2 million Americans out of work. The Conference Board expects that rate to rise to 4.6% by the end of the year, with about 80,000 jobs lost each month until then.

Despite that prediction, Shulyatyeva said companies tell The Conference Board they are not ready to lay off workers.

“They continue to employ all the workers they had trouble obtaining during the COVID-19 period,” she said.

But although companies appear reluctant to shed workers, they also are reluctant to hire additional employees, she said.

“We have seen quite a significant slowdown in job openings. Employers are holding on to their existing workforce, but they are not hiring.”

GDP slowing down but no recession

Inflation has slowed despite fears that tariffs would cause prices to spike. Consumer prices rose 0.2% last month, bringing the annual inflation rate to 2.3%. One reason for the lower-than-expected inflation rate, Shulyatyeva said, is that most tariffs on imported goods have not been passed on to consumers yet.

The Federal Reserve, “faces a huge dilemma,” she said. Between a slowing labor market and potential price hikes fueled by tariffs, the Fed must stop a slowing economy from entering a recession.

“I don’t think the Fed will allow a recession to happen,” she said. The Conference Board predicts the Fed will cut interest rates in September and again in December.

“The bottom line is, we expect significant reduction in GDP growth but not a recession,” she said.

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