Week of August 4, 2025

Key Points for the Week

• August in a post-election year has been especially tough for second-term presidents.
• Reported earnings and margins continuing to rise.
• The labor market has hit a speed bump, with the weakest three months of job growth since 2020. At the same time, the unemployment rate has remained steady. These conflicting data points make it difficult to interpret the Labor market.
• Consumer spending has also slowed, but the massive business spending on artificial intelligence is starting to make a meaningful impact on GDP.
• The Fed remains in a bind, with inflation rising but labor markets wavering, but for now the Fed continues to focus more on controlling inflation.

---

Current Trends & News is a weekly financial recap curated by SPC Financial®'s team of wealth management and tax-integrated advisors. We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

Over the first half of 2025, the U.S. economy grew at a middling pace. Last week, a deluge of economic data suggested it may be losing steam. Here's what we saw:

• Economic growth moderated. The U.S. economy expanded faster than economists expected (3.0 percent annualized) from April through June. It was an improvement on the first three months of the year when the economy contracted (-0.5 percent annualized). Growth, as measured by gross domestic product (GDP), averaged about 1.25 percent over the first six months of the year, a slower pace than last year's 2.8 percent.

"Because swings in trade and inventories have distorted overall GDP this year, economists are paying closer attention to final sales to private domestic purchasers, a narrower metric of demand. This measure rose at a 1.2 [percent] pace in the second quarter, the slowest since the end of 2022."

Augusta Saraiva, Bloomberg

• Consumer prices rose. One of the Federal Reserve's favored inflation gauges, the personal consumption expenditures price index, showed prices rising 2.6 percent year over year in June. That's higher than the 2.4 percent increase in May. Core inflation, which excludes volatile food and energy prices, rose 2.8 percent year over year in June, in line with May's numbers which were revised higher.

"...while the higher tariffs aren't expected to trigger an inflationary surge like Americans saw in 2022, the price hikes won't be easy for everyone...It's going to be uncomfortable for consumers...I think that they're going to start to see it, and they're going to notice that their paychecks aren't going as far as they were.”

Opined an economist cited by Alicia Wallace of CNN Business

• Jobs growth slumped. The unemployment report created a bigger splash than usual. Fewer jobs were created (73,000) in July than economists had expected (115,000). In addition, revisions to May and June estimates were larger than normal. The number of jobs created in May dropped from 144,000 to 19,000, and June's number dropped from 147,000 to 14,000. The baseline for a healthy level of job creation is 80,000 to 100,000 per month, according to a source cited by Megan Leonhardt of Barron's.

“While the size of May and June's revisions was surprising, there are non-political reasons for the wide swings. Economists have warned for years that declining initial response rates from employers, for instance, could create more volatility within the employment data.”

Megan Leonhardt, Barron's

Last week, major U.S. stock indexes moved lower, just as they did after last year's July jobs report revisions. “Anyone who paid attention to markets last year will remember the August 2024 selloff, which was sparked by that year's July jobs report. While last year's report ultimately made the case for the Federal Reserve to cut interest rates by a half-point in September, the economy held steady and stocks eventually rebounded to fresh highs in the ensuing months,”

Connor Smith, Barron's

U.S. Treasuries rallied as softer economic data increased the likelihood of a Federal Reserve rate cut in September, reported Ye Xie, Michael Mackenzie, and Elizabeth Stanton of Bloomberg.

---

The Labor Market

The unemployment rate remains at a historically low level of 4.2% but that hides a lot of underlying weakness. The economy created 73,000 jobs in July. That may be just about enough to keep up with population growth since immigration has collapsed. The problem is that the prior two months were reduced by a whopping 258,000 jobs:

• May job growth was revised down from 144,000 to 19,000.
• June was revised from 147,000 to 14,000.

This brings the 3-month average to just 35,000, assuming we take the July number at face value. For perspective, the prior 3-month average (February–April) was 127,000, which was already a slowdown from the 2024 average of 168,000. Manufacturing has lost 37,000 jobs over the last 3 months. Liberation Day and associated tariff chaos clearly took a toll, along with elevated interest rates. What's uncertain here is whether May-June was the worst of it, and things look better now because the administration has pulled back on tariff extremes.

Combine soft payroll growth with easing wage growth and flattish hours worked, and we're looking at softer aggregate income growth (total income growth across all workers in the economy). Over the last three months, aggregate income growth is running at a 4.5% annualized pace. That would be like what we saw pre-pandemic in 2018–19, but inflation was running below 2% at the time, whereas it's running closer to 3% now.

Inflation Remains Stubbornly Elevated, Leaving the Fed With a Problem

Core inflation (excluding food and energy), as measured by the Federal Reserve's (Fed) preferred personal consumption expenditures (PCE) index, rose at an annualized pace of 3.1% in June, and is up 2.6% over the last three months. Core PCE is up 2.8% over the last year, and the big picture here is that inflation remains stubbornly elevated over the Fed's target of 2% and has moved sideways for about 14 months now.

The problem is that all of this is being offset by a pickup in core goods inflation (things like furnishings, appliances, and recreational goods). Core goods prices rose at an annualized pace of almost 6% in June and are up 4% over the last three months. That is the fastest pace since March 2022, when we had the supply chain crisis. Outside of Covid, it is actually the fastest 3-month pace since 1991! Since the 1990s we have seen a continuous decline in core goods prices. as we got cheap goods on the back of globalization. The big break came after Covid when global supply chains broke, but the downtrend resumed in 2023-2024. Until now, that is, and this is where the tariffs are making their most direct impact.

Even beyond core goods, we're seeing inflation in a couple of other key areas that matter to household wallets:

• Restaurant price inflation has been accelerating, running at an annualized pace of 4.6% over the last three months. That's well above a “normal” pace of about 3%, which would be consistent with the Fed's target of 2% inflation.
• Utilities prices (electricity and gas) are also surging, growing at an annualized pace of 12.5% over the last three months. The main reason is more artificial intelligence (AI)-related demand, while supply isn't expanding at the same pace.

Consumer Spending Stalls

Lower aggregate income growth and higher inflation should translate to lower “real” spending (spending adjusted for inflation). And that's exactly what we're seeing. Real consumer spending grew at an annualized pace of just 0.9% in the first half of 2025. That's well below the 2023–2024 pace of 3.1% (which is why GDP growth clocked in near 3% over the prior two years) and even the 2010-2019 pace of 2.4%.

A big reason for this slowdown is easing services spending, which matters because it makes up 45% of the economy. Services spending ran at a 0.9% annual pace in the first half, a sharp downshift from the 2023–2024 pace of 2.9% and even the 2010–2019 pace of 1.8%.

In short, consumers are just about able to keep up with inflation. But since wage growth is easing, we're seeing a slowdown in real spending.

The Fed Stays on Pause, Buffeted by Opposing Forces

The labor market is clearly slowing, and that by itself ought to trigger interest rate cuts. Policy rates are certainly elevated at their current level of about 4.5%, especially since wage growth is near 3.5%.

Here's the Fed's problem: stubbornly high inflation.

The Fed took a pass on cutting rates at their July meeting because of the uncertainty around the inflationary impact of tariffs. Powell pointed out that they have two mandates: stable prices and maximum employment. They believe that the labor market is in good shape right now (at least before the most recent release) and the low unemployment rate is consistent with their mandate of maximum employment. However, they're worried about inflation remaining elevated, and pass-through effects of tariffs, which they believe will take several months to show up. The White House also has a new tariff blitz as of August 1 (but they won't go into effect until August 7).

Moreover, in his post-Fed meeting press conference, Powell noted that the economy isn't performing as if restrictive rates are holding it back, and if anything, rates are only modestly restrictive. This implies they're willing to wait longer to get more data, and even if they cut, it may not be by much.

It will be interesting to see how the July payroll data reshapes their thinking, but likely, we'll probably get a better picture of the policy rate path only after the next one or two inflation reports. Markets were pricing in a 66% probability of a September rate cut before the Fed's July meeting, but that dropped to 40% after Powell's comments during the post-meeting press conference. However, the weak payroll data sent the probability of a September cut surging to over 80%. This is going to continue shifting over the next month, until we get clarity from the Fed.

Economic Growth Is Being Held Up by AI

Real GDP growth clocked in at a 3% annual pace in the second quarter, a sharp upswing from the 0.5% pullback in Q1. But that was on the back of trade volatility, as imports swung wildly up and down due to tariff front-running, along with inventories. Net exports (exports minus imports) dragged from GDP growth by 4.5%-points in Q1 and added 5%-points in Q2. Both were the largest ever on either side.

But the headline strength in Q2 GDP growth hides underlying weakness. “Real final sales," which essentially measures consumer, business, and government spending and investment, rose 1.1% in Q2, slowing from an already below-trend pace of 1.5% in Q1—thus averaging 1.3% over the first half. For comparison, this measure rose at an annual pace of 3.2% in 2023–2024 and 2.5% in 2010–2019. There's a real slowdown in place.

The big driver of the slowdown is consumer spending, as I discussed previously. And thanks to elevated rates, business investment (especially in structures) and residential investment (housing) are also a drag. Government spending is also slowing.

All of this by itself would have meant the economy stalled in the first half of 2025. However, there was a major factor pushing things the other way, and helping the economy avoid the precipice of a recession: AI spending, both on the hardware and software side.

• Equipment spending on computers and peripherals has been rising over the last two years but surged another 35% over the last six months (translating to an annualized pace of 83%!).
• Software spending rose at an annual pace of 6% in the first half.

AI spending contributed an average of 1.0%-point to GDP growth over the last two quarters. That's more than the contribution of 0.6%-points from consumption, which makes up close to 70% of the economy.

Cash-rich tech companies are going on a capex spending spree, providing a crucial boost to the economy, and that's not ending soon, based on recent tech company earnings calls. But it also hides the underlying weakness in the economy and makes the headline data look better than it is. When combined with tariff-related inflation in core goods, that's pushing the Fed away from providing interest rate relief, which means rate-sensitive parts of the economy will continue to struggle.

---

Gold Held in an IRA

Concerns about US debt loads, inflation, political turmoil and more have led to a flurry of questions about investing their retirement account in gold or silver.

Just like land investments, the ownership of gold in an IRA is technically legal. But the taxpayer may not touch it, physically keep it or hold it in their own safe because it must be held by an approved trustee and physically maintained in an IRS approved physical depository. The physical storage requirements of gold means that the custodian will charge significant fees, and the IRA must maintain a substantial amount of cash to pay those fees for many years. Annual costs usually run between $250-$300.

The Tax Court held that a taxpayer who self-directed her individual retirement account (IRA) to invest in American Eagle coins through a limited liability company owned by the IRA and managed by the taxpayer, and who then took physical custody of the coins, received a taxable distribution equal to the cost of the coins. The court also found that a statement on the website the taxpayer used to set up her IRA, which indicated that taxpayers could purchase coins with IRA funds and obtain physical possession of the coins without tax consequences, did not constitute a reasonable cause defense to the substantial understatement of tax penalty. (McNulty v. Comm'r, 157 T.C. No. 10 (2021)).

Then there are these questions:

1. Where do you find a qualified trustee and a qualified custodian?
2. How do you make RMD's when reaching age 72?
3. What are the fees paid to the custodian?
4. What are the fees paid to the trustee?
5. Where does the cash come from to pay the fees of the custodian and the trustee?
6. Is your investment limited to American Gold Eagles or equivalent 99.9% purity standard bars? (It does or it does not qualify-Krugerrands do not qualify because of the purity requirement)
7. Are you younger than the age of 55? The volatility of gold prices makes the risk unacceptable for an older investor according to every standard of investment advising.
8. You must buy the gold investment from an unrelated seller-you cannot deposit gold that you already own in an IRA.
9. Are you willing to buy an investment that you are paying 20% more than it is going for in the spot market? The spot price needs to go up 25% just to make a net 5% on the investment. Can you imagine paying a 20% commission to buy stock?
10. Are you willing to buy an investment for which you pay a 25% premium over purchase price, then pay another 5-10% premium over spot price to sell it?
11. Does a gold investment really protect you against an economic collapse when you don't physically have it in your possession? How will you access it if the transportation system is down, or the economy collapses?
12. Have you considered that you may be a victim of an investment scam of a self-directed IRA setting up an LLC that keeps the gold in your home or a local safe deposit box? Run from anyone promoting this concept-even the IRS says to watch out for this scam. The “Home Storage Gold IRA” is not legal read the tiny, tiny fine print of the seller! The home storage IRA does not meet the IRS’ definition of a trustee because it has not submitted documentation to the IRS meeting the stringent list of regulations including requirements relating to fiduciary ability, fiduciary experience, capacity to account, fitness to handle retirement assets, bonding, audits and net worth. Moreover, the applicant cannot act as a trustee until the IRS provides notice that the application has been approved. Adding an LLC to the mix is ridiculous and transparent to the IRS.
13. Have you considered just owning gold through an investment account investing in a gold ETF trust that avoids all these risks and hassles?
14. Have you considered that if we had a complete collapse of our economic system or electric grid your gold would have already been taken by the entities in charge of the vault? And, if we cannot drive or fly, you would have to walk to New York to get it?

If you have any questions about investing in gold or silver, please contact us.

---

A Shift in Sentiment

Sentiment has a profound influence on financial markets. When consumers are optimistic about their financial circumstances, they may spend more, lifting the economy. When they're pessimistic, they spend less, dampening economic growth.¹⁴ Investor sentiment also affects markets. When investors are bullish, stock prices tend to rise. When they feel bearish, stock prices may fall. Over the past few weeks:

Investors were feeling bullish. The day before the employment report arrived last week, the latest AAII Investor Sentiment Survey showed bullish sentiment was greater than bearish sentiment. Investor optimism was fueled in part by strong company earnings reports. Last week, the net profit margin for companies in the Standard & Poor's 500 Index was 12.3 percent for the second quarter. That's above the five-year average of 11.8 percent, according to John Butters of FactSet. Together, S&P 500 companies have reported net profits above 12 percent for five consecutive quarters.

Investor confidence faltered last week.

"America's biggest companies are racing full speed ahead, but the economy could be headed for trouble. That's not a great mix for the stock market, which suffered its worst week since May.” Avi Salzman, Barron's

Consumer sentiment was mixed. Consumer sentiment ticked higher in July, according to the University of Michigan's Index of Consumer Sentiment. While participants were more optimistic about current conditions, they were less optimistic about the future.

“A rise in sentiment among stockholders was partially offset by a decline among consumers who do not own stocks... Although recent trends show sentiment moving in a favorable direction, sentiment remains broadly negative. Consumers are hardly optimistic about the trajectory of the economy, even as their worries have softened since April 2025.” Joanne Hsu, Surveys of Consumers Director

---

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state's attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver's license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

---

IRS Shifts to Electronic Payments

On March 25, 2025, President Trump signed Executive Order 14247 — Modernizing Payments to and From America's Bank Account. The order requires all payments made from or to the IRS to be conducted via electronic funds transfer (EFT).

The purpose of the Executive Order is to combat unnecessary costs, delays, risk of fraud, lost payments, theft and inefficiencies. For Fiscal year 2024 issuing paper checks was estimated to cost taxpayers more than $657 million.

The phaseout of paper check disbursements and receipts is scheduled for Sept. 30, 2025. Payments such as fees, fines, loans and taxes must be made electronically where permissible under existing law.

A few exceptions will remain at the discretion of the Treasury secretary:

1. Individuals without access to banking services or electronic payment systems;
2. Emergency payments where electronic disbursement would cause undue hardship;
3. National security- or law enforcement activities where non-EFT transactions are necessary or preferred;
4. Other circumstances as deemed necessary by the secretary.

Heads of federal agencies must submit implementation plans within 90 days of the order. Treasury Secretary Scott Bessent has 180 days to submit an implementation report detailing progress under the order.

Taxpayers should prepare for the shift to electronic payments ahead of the Oct. 15 filing deadline.

---

Did you Know? This Week in History

August 5, 1861: Abraham Lincoln Imposes First Federal Income Tax

On August 5, 1861, President Lincoln imposed the first federal income tax by signing the Revenue Act. Strapped for cash with which to pursue the Civil War, Lincoln and Congress agreed to impose a 3 percent tax on annual incomes over $800.

As early as March 1861, Lincoln had begun to take stock of the federal government's ability to wage war against the South. He sent letters to cabinet members Edward Bates, Gideon Welles and Salmon Chase requesting their opinions as to whether the president had the constitutional authority to “collect [such] duties.” According to documents housed and interpreted by the Library of Congress, Lincoln was particularly concerned about maintaining federal authority over collecting revenue from ports along the southeastern seaboard, which he worried, might fall under the control of the Confederacy.

The Revenue Act's language was broadly written to define income as gain “derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere or from any source whatever." According to the U.S. Treasury Department, the comparable minimum taxable income in 2003, after adjustments for inflation, would have been approximately $16,000.

Congress repealed Lincoln's tax law in 1871, but in 1909 passed the 16th Amendment, which set in place the federal income-tax system used today. Congress ratified the 16th Amendment in 1913.

---

Weekly Focus

"If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.”

LMarcus Aurelius, Roman Emperor

"It is not what you have or who you are or where you are or what you are doing that makes you happy or unhappy. It is what you think about it.”

LDale Carnegie, American Writer and Teacher

---

Links & Disclaimers