Economic Indicators – Cycle-Aware Interpretation

The Conference Board’s Leading Economic Index (LEI) continues to decline, signaling cautious expectations for the broader economy. In June, the US LEI fell 0.3% to a level of 98.8 (2016=100)conference-board.org. This marks a 2.8% drop in the index over the first half of 2025 – an accelerated rate of decline compared to late 2024conference-board.org. Key drags on the LEI include weak manufacturers’ new orders, soft consumer expectations, and a recent rise in jobless claimsconference-board.org. Stock prices have been a lone positive contributor. The LEI’s persistent downtrend (declining in 16 of the past 18 months) has triggered recession-warning signalsconference-board.org. However, the Conference Board notes that while growth is set to slow substantially in late 2025, a recession is not guaranteed if labor markets and consumer spending hold upconference-board.org. Housing building permits – another forward-looking gauge – have been plateauing. In June, permits came in at 1.397 million units (annualized), essentially flat from Mayadvisorperspectives.com. This was slightly better than expected, but permits are ~4% lower than a year agoadvisorperspectives.com. Single-family permits in particular have cooled (866k SAAR in June, an 8% YoY drop) as higher interest rates dampen new constructionadvisorperspectives.com. Overall, leading indicators point to late-cycle dynamics: manufacturing is in a mild slump, housing activity is off its peaks, and financial conditions are weighing on sentiment. These indicators suggest slower growth ahead, aligning with forecasts that the economy will downshift in H2 2025.

Coincident Indicators (Employment, Output, GDP)

Real-time measures of the economy show moderate growth through Q2 2025. The labor market – while past its hottest point – is still adding jobs. The June jobs report showed a gain of 147,000 nonfarm payrollsbls.govbls.gov. This is a deceleration from the 200k+ monthly averages of 2024, but enough to nudge the unemployment rate down to 4.1% (from 4.2% in May)actalentservices.combls.gov. The unemployment rate has hovered in the low-4% range for over a yearbls.gov, reflecting a labor market that is cooling yet still historically tight. Importantly, labor force participation (62.3%) was little changed, and wage growth has moderated without collapsing. Consumers continue to benefit from job availability, though job gains are now roughly half the pace of last year – consistent with a maturing expansion.

Other coincident data are similarly mixed-positive. Industrial production output unexpectedly rose 0.3% in Junekpmg.com, as a surge in utility output (air-conditioning demand) offset only tepid manufacturing growth of 0.1%kpmg.comkpmg.com. Manufacturing activity has essentially flattened out – underlying factory output was roughly unchanged in Q2, with weakness in autos and machinery due to softer demand and tariff costskpmg.comkpmg.com. Notably, excluding autos (where production is down on higher prices and inventory buildup), manufacturing output would have risen a healthier 0.3% in Junekpmg.com. Meanwhile, services sectors (not directly reflected in industrial production) continue to expand modestly, as seen in positive services PMI and ongoing job growth in health care and state/local governmentbls.govbls.gov. Combining these trends, the Atlanta Fed’s GDPNow model estimates Q2 2025 real GDP growth around +2.4% (annualized)atlantafed.org. This is on par with Q1’s growth and indicates the economy maintained moderate expansion in the April–June period. Solid consumer spending (especially on services and travel) and business investment in equipment have offset drags from housing and inventories. In sum, coincident indicators depict an economy still growing in Q2 – albeit at a slower, sustainable rate. Hiring and output are expanding enough to keep the recovery on track, even as momentum cools from the rapid post-pandemic rebound.

Lagging Indicators (Credit Stress, Bankruptcies, Corporate Health)

Lagging economic indicators reveal some financial stress building at the margins. Consumer credit quality has begun to deteriorate gradually from unusually strong levels. Overall consumer loan delinquency rates at U.S. banks rose to 2.77% in Q1 2025 (of all consumer loans) from about 2.67% a year earlierfred.stlouisfed.org. While still low by historical standards, delinquencies on credit cards and auto loans are now “somewhat above their historical medians,” particularly driven by non-prime borrowers missing paymentsfederalreserve.gov. For example, credit card 90-day delinquency rates in lower-income areas have jumped from ~12% in 2022 to over 20% by early 2025stlouisfed.org. With interest rates up and pandemic-era savings eroded, more consumers are running into trouble on unsecured debts. Similarly, consumer bankruptcy filings have ticked higher (total bankruptcy filings were up 13% year-on-year as of Q1 2025)themortgagepoint.com. These signs confirm a mild worsening in household finances, though not alarming yet – the overall household debt-to-income ratio remains near 20-year lows, and most mortgages are locked at low ratesfederalreserve.gov.

On the corporate side, financial stress indicators have turned decisively worse in 2025. U.S. business bankruptcy filings surged in the first half. Through June, 371 companies filed for bankruptcy, the highest H1 total since 2010spglobal.com. June alone saw 63 corporate bankruptcies, extending a rapid pace from springspglobal.comspglobal.com. Particularly notable is the uptick in large filings – several billion-dollar liability companies (in retail, manufacturing, and solar energy) sought Chapter 11 protection in Q2spglobal.comspglobal.com. The drivers are clear: many firms face worsening liquidity as debt taken on at low rates now carries higher interest costs, just as earnings soften. Corporate debt levels remain high, and the Fed’s rate hikes have pushed interest expenses up – squeezing firms with weaker balance sheets. Indeed, interest coverage ratios (ICRs) for publicly traded companies have slipped to the lower end of historical ranges for smaller and private firmsfederalreserve.govfederalreserve.gov, though large firms’ ICRs are still moderate thanks to stable earnings so far. The Fed’s April Financial Stability Report noted that while overall corporate leverage has ticked down, ICRs for the most vulnerable firms are very low, heightening default riskfederalreserve.gov. We are now seeing that risk manifest in higher default and bankruptcy counts. By sector, discretionary consumer businesses and industrial manufacturers lead the filings (over 100 each in H1)spglobal.com, reflecting the pressure from waning consumer demand and higher input costs (including tariffs). Corporate bond spreads have also widened a bit in recent months in sympathy, although no acute credit crunch is evident. In summary, lagging indicators highlight that the financial cracks are appearing after years of easy credit – rising delinquencies and a spike in corporate bankruptcies suggest that the tightening cycle is biting, especially for heavily indebted households and companies.

Trade & Policy Developments

Geopolitical and policy developments in mid-2025 are influencing the economic landscape. In trade, the U.S.–China tariff conflict re-escalated earlier in the year, injecting volatility. The U.S. imposed a round of new tariffs in April 2025, prompting China to respond in kindfreightwaves.comfreightwaves.com. Businesses temporarily front-loaded imports, boosting freight rates and factory orders in late spring, only for activity to drop back once a 90-day tariff truce was reached in Junefreightwaves.compackagingdive.com. This whipsaw is evident in supply chain metrics – e.g. ocean freight prices spiked then fell, and the ISM surveys cited tariffs as a factor in slower new orders and rising input prices (ISM’s Prices Index jumped above 69, partly “tariffs-induced”prnewswire.comprnewswire.com). Going forward, trade rhetoric remains a wild card: the Trump administration’s tariff policy is still in flux, keeping exporters wary. On the domestic front, major fiscal legislation was enacted in early July. H.R.1 – the “One Big Beautiful Bill Act” – was signed into law on July 4, 2025, bringing sweeping tax and regulatory changesadp.com. Critically, H.R.1 makes permanent the individual and corporate tax cuts from 2017 that were set to expire in 2025adp.com. It also raises the cap on state and local tax deductions to $40k (from $10k) through 2029adp.com, among other provisions aimed at boosting disposable incomes and business investment. Furthermore, the bill introduces new tax deductions for certain wages (overtime and tipped income) to encourage labor force participationadp.com. These policy moves are expected to provide modest stimulus to the economy. The permanence of lower tax rates should bolster business confidence and could improve corporate cash flows (helping interest coverage) over the medium term. Households in high-tax states will get some relief via the higher SALT deduction, potentially supporting consumer spending in 2025–26adp.com. In the near term, however, H.R.1’s effect is likely to be gradual; monetary policy and global demand will play larger roles in late-2025 activity. Overall, the economic indicators through Q2 2025 show an economy navigating a soft patch with significant cross-currents – slowing momentum and emerging financial stresses offset by robust labor conditions and new policy support. The net outcome is continued growth, but at a cooler pace as we enter the second half of the year.

Owner/Operator Takeaway:
The economy in Q2 2025 sits squarely in late-cycle limbo. Growth is still positive. Payrolls are still expanding. But almost all the leading indicators are flashing amber, and lagging indicators—like delinquencies and bankruptcies—are quietly turning red.

The labor market has downshifted from roaring hot to moderately strong. Manufacturing is barely growing. Permits are flat. The Conference Board’s LEI is in a protracted slide. Yet GDP is still growing around 2.4%, thanks largely to consumer services and residual fiscal juice.

This is the classic “mature expansion” moment—slow enough to tempt caution, strong enough to lull companies into complacency. And in that lull lies danger.

Operators should treat the second half of 2025 as a balance-sheet tuning window. Focus on:

• Cash generation, not revenue vanity.
• Fixed cost reduction, not expansionary bets.
• Scenario planning, not baseline-only budgets.

If a recession hits, the early 2026 quarter may be the inflection. If not, inflation’s return will rear its head via energy, tariffs, or wage policy. Either way—resilience beats optimism. This is when capital discipline and working capital hygiene show up in P&Ls.

Sources: U.S. Bureau of Labor Statistics; Institute for Supply Management; Federal Reserve Board; U.S. Department of Agriculture; S&P Global Market Intelligence; DAT Freight & Analytics; Drewry Maritime; Conference Board; Packaging Dive; Atlanta Fed GDPNow