This Week in the U.S. Economy: The Complex Interplay of Consumption, Employment, Policy, and Tariffs

This week, the U.S. economy has shown a multi-dimensional and complex landscape, with widespread attention focused on economic data, tariff policies, Federal Reserve statements, bill progress, and tariff negotiations. These factors are intertwined, profoundly influencing the trajectory of the U.S. economy.

Shifts in Consumer Confidence and Behavior

The University of Michigan's final consumer confidence index for May showed a rebound from early May but remained at a low 52.2, indicating some recovery in confidence but overall depressed sentiment. First-quarter earnings reports from Dollar Tree and Dollar General, two major US discount stores, showed a significant increase in customer traffic from households with incomes over $100,000, with 2.6 million new middle-to-high-income customers. This reflects that even high-income groups are increasingly choosing discount stores due to factors like tariffs.

Data from the US Bureau of Labor Statistics shows that the consumer price index (CPI) for all foods rose 23.6% from 2020 to 2024, exceeding the overall CPI increase (21.2%) over the same period. The CEO of Campbell Soup, one of the largest processed food companies in the US, said the current rate of home cooking in the US is approaching the peak during the pandemic lockdown. A McKinsey report shows 63% of consumers plan to change spending habits due to tariff adjustments, with 43% listing rising prices as their top concern. Among those expecting to change behavior, over half plan to cut non-essential spending, and 50% expect to delay discretionary purchases like electronics, accessories, jewelry, or dining out.

Labor Market Warning Signs

On June 6, the US Bureau of Labor Statistics released May 2025 non-farm payroll data: the US added 139,000 jobs, slightly above the expected 126,000. However, looking back, prior data was significantly revised downward: April was revised down by 30,000 to 147,000, and March was revised down by another 65,000 to 120,000 (initial 228,000), with a combined revision of 138,000 for March-April—nearly offsetting May's gains. The unemployment rate held at 4.2% in May, and the labor participation rate fell to 62.4% from 62.6% in April.

Sector performance diverged: Services added 145,000 jobs, led by education/healthcare and leisure/hospitality; trade/transportation rebounded due to eased Sino-US trade tensions. Production sectors cooled significantly, with manufacturing jobs dragged down by weak retail, and government jobs fell slightly due to federal layoffs. Wage growth picked up in most sectors except retail/transportation, adding inflationary pressure and making the Fed more cautious about rate cuts.

A monthly report from ADP and Stanford University's Digital Economy Lab showed private sector employment only increased by 37,000 in May, well below the expected 110,000 and April's 62,000—the lowest since March 2023. ADP Chief Economist Nela Richardson said the US job market is "losing momentum," with businesses significantly reducing hiring, partly due to trade policy uncertainty.

Sector divergence:

By sector, most new private jobs in May were in services, especially leisure/hospitality. However, manufacturing jobs fell by 3,000, while trade/transportation/utilities and professional/business services lost 4,000 and 17,000 jobs respectively due to tariff policies, indicating tangible impacts on US employment structures.

Initial jobless claims for the week ending May 31 rose to 247,000, above the expected 235,000 and the highest since October 5 last year. The four-week moving average was 235,000, with continuing claims at 1.904 million. Rising initial claims reflect worsening unemployment, as businesses may cut jobs or pause hiring due to economic uncertainty. A previous Bank of America Institute report showed a sharp year-on-year increase in unemployment claims among high-income households from February to April, followed by mid-low income groups in April, indicating job market pressures spreading from low to high-income groups.

Fed Beige Book Reveals Economic Strains

June 4, the Fed released its latest Beige Book, showing US economic activity edged down since the last report, with businesses and consumers facing rising policy uncertainty and price pressures, and a pessimistic overall outlook. The Beige Book noted prices continued to rise moderately, with businesses expecting accelerating future costs, partly due to tariffs. The term "tariff" appeared 122 times, up from 107 in the previous report, and "uncertainty" -related terms 80 times.

On labor markets, all regional Fed reports mentioned declining labor demand, reduced hours, hiring freezes, and layoff plans, echoing this week's ADP and jobless claims data. Manufacturing activity generally contracted, consumer spending was mixed (weak retail/dining but surging demand for tariff-affected categories like cars), residential real estate was sluggish, and business capital spending plans diverged.

Diverging Fed Policy Views

This week, multiple Fed officials commented on monetary policy: Chicago Fed President Goolsbee said rates may stay unchanged to assess trade policy impacts; St. Louis Fed President Muthalam noted the Fed will focus on stabilizing long-term inflation expectations; Atlanta Fed President Bostic advocated waiting to decide on rate changes; Cleveland Fed President Hammack preferred patience; Vice Chair Jefferson said the current policy stance is appropriate; Kansas City Fed President Schmid worried tariffs could reignite inflation, suggesting keeping rates on hold beyond June. Markets widely expect the Fed to stay on pause in June.

"One Big Beautiful Bill" Faces Hurdles

The Trump-backed "One Big Beautiful Bill Act," passed by the House on May 22, now heads to the Senate. A CBO analysis released on June 5 (assuming this week is the first week of June) showed the bill would cut taxes by $3.75 trillion over a decade but increase deficits by $2.4 trillion.

Core provisions include extending 2017 individual tax cuts expiring in December and new tax breaks like tip exemptions, plus $350 billion for border security and national security. However, it faces opposition from some conservative Republicans, while Trump aims to sign it by July 4. In the Senate, Republicans can afford to lose at most 3 votes. Tesla CEO Musk has stepped up opposition, calling on the public to "veto" the bill due to reduced EV tax credits and political disagreements, which could delay progress.

Difficult Tariff Negotiations

Tariff talks remain limited and uncertain. On May 28, the US Court of International Trade ruled Trump's tariff orders unconstitutional, but a federal appeals court stayed enforcement the next day. On May 30, Trump announced raising steel and aluminum tariffs from 25% to 50%, intensifying market concerns. Canada and the EU threatened retaliation, with the EU preparing responses after pausing countermeasures in April.

Notably, on the evening of June 5, Chinese President Xi Jinping spoke with US President Trump by phone for 90 minutes, focusing on trade. China called for the US to lift negative measures, while Trump expressed willingness to send Treasury Secretary Besant and Commerce Secretary Lutnick for talks. Trump later said the call was "very good," hinting at potential trade tension relief. However, while the call brought positive signals, substantial breakthroughs remain unlikely in the short term amid complex political, judicial, and international dynamics.