On a monthly basis, that translates to an average gain of just 15,000 jobs per month, one of the weakest non-recessionary performances going back to 2003.
Back in 2022, many economists, including this one, predicted that 2023 would bring about a recession. That forecast was driven largely by signals from financial markets, particularly the yield curve, the relationship between short- and long-term bond yields. When the yield curve inverts, meaning short-term rates rise above long-term rates, a recession has historically followed about a year later.
The recession never officially materialized. But with the benefit of revised data, we now know that job growth throughout 2024 and into 2025 was far weaker than originally believed. In hindsight, the economy may not have been as strong as headline numbers suggested.
We entered 2025 with elevated uncertainty surrounding trade policy. Then came Liberation Day on April 2nd, and uncertainty intensified. Equity markets experienced significant volatility, and capital allocation decisions became more reactive than strategic, sometimes shaped more by social media posts than by long-term planning.
What was the ultimate impact of this uncertainty on economic growth? The quarterly data provide some clues.
First-quarter GDP contracted sharply. Much of the decline was due to a surge in imports. Retailers, manufacturers, and even consumers rushed to purchase goods ahead of tariff implementation. Because imports subtract from GDP in the national accounting framework, that surge pulled overall growth lower. At the same time, data center investment was unusually strong, providing an offsetting but concentrated boost.
In the second quarter, GDP rebounded as imports normalized. Trade once again played an outsized role, contributing significantly to 3.8% growth. Much of that rebound reflected a reversal of the earlier import spike rather than broad-based acceleration.
By the third quarter, growth strengthened further, driven primarily by consumer spending, particularly services, along with continued improvement in net exports.
Advance estimates for the fourth quarter show growth slowing to 1.4%. Once again, the consumer carried much of the expansion, largely through services spending, while goods spending softened. The government shutdown erased nearly as much activity as the economy generated during the quarter, dampening overall momentum.
Tariffs were intended to boost domestic manufacturing and reduce the nation’s trade deficit. Nearly one year after the announcements, the trade deficit widened in the most recent quarter and now sits roughly where it stood prior to the first-quarter import surge. In fact, the deficit exceeds levels seen in 2023 and is comparable to 2024 levels.
On the manufacturing front, some early green shoots are emerging after several years of sluggish performance. However, tariffs have not been kind to Indiana. Manufacturing employment in the state has declined since the April Liberation Day announcement.
Total employment in Indiana has increased by only about 2,000 jobs since April. Remove the gain of approximately 14,000 jobs in education and health services, primarily health care, and overall employment would show a clear decline.
For Indiana, tariffs have been more headwind than tailwind.
With the recent Supreme Court reversal and the potential reduction or elimination of certain tariffs, manufacturing may see improved conditions heading into 2026. A more stable trade environment could provide a meaningful lift for Indiana, across rural counties and metropolitan regions alike.
