UBS sounds the alarm on ‘stall speed’ as the economy shows signs of running out of gas
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It's not an immigration or population shock—fewer people are working, amid shorter hours and lower demand. “The drop in the labor force participation rate has masked how much slackening is actually ta...
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August 5, 2025
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Fortune
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Economy·JobsUBS sounds the alarm on ‘stall speed’ as the economy shows signs of running out of gasBy Nick LichtenbergBy Nick LichtenbergFortune Intelligence EditorNick LichtenbergFortune Intelligence EditorNick Lichtenberg is Fortune Intelligence editor and was formerly Fortune's executive editor of global news.SEE FULL BIO Stalling out?Getty ImagesThe U.S. economy is experiencing a noticeable slowdown in mid-2025, with sluggish domestic demand growth, muted job gains, and new tariff actions poised to impact both inflation and overall economic momentum, according to a recent analysis from UBS Global Re
The US Economics Weekly note from the Swiss bank noted real GDP grew at an annualized rate of just 1.2% in the first half of 2025, a significant step down from the more robust pace observed in 2023 and early 2024
Quarter-over-quarter growth figures point to a sequential weakening, the team led by economist Jonathan Pingle added, particularly in domestic demand, which has dropped from above 3% last year to around 1% in recent quarters
Labor demand is responding in kind
Monthly nonfarm payroll growth has slowed sharply, with July seeing an increase of only 73,000 jobs—well below expectations and accompanied by sizeable downward revisions for previous months
The three-month average for job gains is now just 35,000 per month, a rate described as “stall speed” by Federal Reserve Vice Chair Michelle Bowman and Governor Chris Waller. (Both Bowman and Waller are minent names floated to replace Fed chair Jerome Powell, a figure the Trump White House has extensively criticized.) The unemployment rate ticked up to 4.25%, the highest level since 2021, and the broadest measure of labor underutilization, known as U-6, is also higher—more than a percentage point above pre-pandemic levels
Crucially, Pingle’s team found shrinking labor force participation rather than a sudden immigration or population shock is behind the weaker labor force growth. “The drop in the labor force participation rate has masked how much slackening is actually taking place,” the report contends, noting that multiple demographic groups, including Black Americans and teenagers, are showing higher unemployment and falling participation
Population growth as recorded by the household survey is holding steady near previous years’ levels—contradicting assertions that tighter immigration is meaningfully constricting the labor market
UBS notes this contradicts statements from Jerome Powell: “Despite Chair Powell’s nouncement at the post FOMC press conference that the immigration slowdown was slowing population growth and thus labor force growth, that is not what is happening in the actual data
The Household Survey and Establishment Survey look more the labor market is slackening, and the household survey itself estimates that population growth is not slowing.” The average workweek remains subdued, sitting at 34.25 hours in July—below 2019 levels and far from the “stretching” typical when labor are tight due to worker shortages
Industry-specific data show that job losses are not concentrated in sectors with large immigrant workforces, further supporting the view that slack comes from weakened demand, not a supply constraint
Tariffs set to climb, threatening further drag Tariff policy, after a series of negotiations and executive actions, is on track to become even more restrictive
The new suite of recical tariffs, including a 35% rate on Canadian imports (excluding USMCA-compliant goods) and across-the-board hikes affecting nearly 70 countries, is expected to raise the U.S. weighted average tariff rate (WATR) from 16% to apximately 19% starting in early August
UBS estimates this will subtract 0.1 to 0.2 percentage points from growth over the next year
Sectoral carve-outs persist, but with the EU now facing a 15% tariff on most exports to the U.S.—lower than originally posed, but still a significant rise—UBS expects direct pressure on prices for automobiles, semiconductors, pharmaceuticals, and more
Presidential posals to slap a 200% tariff on pharmaceuticals remain under discussion, but would have massive implications if implemented
Rate cuts on the horizon With evidence mounting that both growth and labor are softening and that tariffs may further boost core inflation from 2.8% currently to as high as 3.4% by year-end, pressure is building for the Federal Reserve to ease monetary policy
While Chair Jerome Powell kept a possible September rate cut on the table, he offered little forward guidance, stating that the totality of incoming data will dictate the next move
UBS maintained its expectation that the Federal Open Market Committee will cut rates by 25 basis points in September and by as much as 100 basis points before the end of 2025
Ultimately, the bank found that the U.S. economy has entered a slowdown as 2025 unfolds, with fading domestic momentum, cooling job growth, and the shadow of higher tariffs ly to dampen the outlook further
UBS reers argue that the data show a demand-driven deceleration, not a supply squeeze, and that the Fed will ly act soon to cushion the landing
For this story, Fortune used generative AI to help with an initial draft
An editor verified the accuracy of the information before publishing
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