At the national level, gross domestic product performance in the first half of 2025 has been mixed.

The first quarter registered a contraction of –0.5% (annualized), largely the result of firms pulling forward imports in anticipation of tariffs as I discussed in the July month-end report.

That negative quarter understandably raised fears of a recession. However, the second quarter rebounded, aided by normalization in imports and exports.

Given these developments, I have modestly revised upward my GDP forecasts for 2025 (1.4%) and 2026 (1%). While these are historically low growth rates and risks remain, I now anticipate that if a recession does occur, it will likely be mild, barring an unexpected shock.

Two policy levers provide buffers: The Federal Reserve has room to reduce interest rates, offering potential monetary stimulus, and the recent continuation and expansion of the 2017 tax cuts provides fiscal stimulus.

Yet, the One Big Beautiful Bill, passed July 1 by a 51–50 Senate vote (with Vice President J.D. Vance breaking the tie) and a 218–214 House vote, will introduce substantial budgetary cuts starting in FY2026.

These cuts include structural changes to Medicaid (introducing work requirements) and SNAP eligibility, disproportionately affecting lower-income households. While lower-income consumers may spend less individually, in aggregate their spending power is critical because they make up the bottom 50% of income earners, representing over 160 million Americans.

Their spending, unlike higher-income groups, goes directly into consumption rather than savings or investments, making them central to aggregate demand and domestic business growth.

Closer to home, Colorado faces pressing fiscal challenges. The state legislature convened a special session to address an additional $1 billion shortfall for FY2026 (fiscal year started July 1). This comes on the heels of a $1.2 billion shortfall in FY2025, highlighting ongoing strains in state revenues relative to expenditures (also a huge national problem).

At a Nov. 5 economic and legislative update, Mark Ferrandino will discuss the outcomes of this special session, including the downstream implications for Coloradans of those legislative decisions. (Details on that event are at the end of this article).

Turning to the labor market, we see somewhat mixed signals. Nationally, the unemployment rate rose from 4.4% in June to 4.6% in July, while the broader U-6 underemployment measure ticked up from 8.1% to 8.3%.

In contrast, Colorado’s unemployment rate fell from 4.5% in May and June to 3.9% in July, a reversal from previous months when the state’s unemployment rate was higher than the U.S.

Even more encouraging, El Paso County’s unemployment rate dropped from 4.5% to 4% over the same period. Remember, these rates are not seasonally adjusted, because local rates are only provided without seasonal adjustment, and we want to keep national, state and local rates apples to apples.

But the low unemployment rate is low for a myriad of not-so-good reasons, including fewer people who are searching (for example, baby boomers retiring and fewer immigrants).

As I stated in a recent article, July’s (new) employment numbers were about half (73,000) of what they historically have been, and downward revisions to May and June were painful (258,000 lower than previous estimates).

Gary Horvath at the Colorado-based Business and Economic Research (CBER) also reminds us of the broader state context: Colorado’s employment remains well below the 2012–2019 average, even as U.S. employment hovers closer to pre-pandemic trends.

Employment and GDP tend to move in tandem, and this shortfall helps explain why both CBER and the state’s Office of State Planning and Budgeting are projecting much lower state (economic) growth rates for 2025 and 2026.

The Colorado Springs MSA job market, however, remains relatively strong. Job openings rose slightly from 18,270 in June to 18,483 in July. At the same time, unemployment fell from 18,120 to 16,025 people, reducing the ratio of available workers per opening to just 0.87. To me, this means that if someone local has an in-demand skill, they should be able to find a job.

Nationwide, consumers are voicing some concerns about the current prospects for the labor market — not so much worried about their existing job, as much as feeling a job change would be challenging. This is reflected in the consumer sentiment surveys with the University of Michigan index declining from 61.7 in July to 58.6 in August (down 5%).

Buying conditions for durable goods plunged 14%, reaching a one-year low due to high prices. Current personal finances declined modestly, as households expressed specific concerns about purchasing power.

Inflation expectations, in addition, turned upward again. One-year inflation expectations rose from 4.5% to 4.9%, while long-term expectations moved from 3.4% to 3.9%. Although both remain below the peaks seen in April and May, the reversal underscores persistent anxiety about consumer’s eroding purchasing power.

I pay attention to inflation expectations, as does the Fed, as consumers are savvy about inflation expectations. Those expectations are based on price patterns they see day in and day out. Consumers are great data gatherers.

These concerns are valid: The consumer price index rose 0.2% in July for all items and 0.3%, excluding food and energy, with year-over-year increases of 2.7% for headline inflation and 3.1% for core inflation.

Most worrying is that price increases were broad-based, making it more likely that inflation will be both more persistent and harder for consumers to evade. Similarly, the Producer Price Index had a surprisingly large increase (+0.9%), and as I stated in a recent article, the prices producers pay today translate to the prices consumers pay tomorrow.

With the seesaw movements in tariffs, businesses state they have been largely absorbing their price increases (passing on roughly 22% of those higher costs through June). But according to Goldman Sachs estimates, firms will be passing on 67% of their costs, as margins have now gotten too skinny for them to absorb all cost increases.

In the Pikes Peak region, home sales were steady in July, and median home prices rose modestly. The Colorado Springs MSA median home price was $480,600 in Q2 2025, a 0.2% increase over Q2 2024. The city ranks as the 49th-most-expensive metro in the U.S., improving from 47th in Q1.

Denver’s median price was $667,200, down 0.4% from a year earlier, ranking 22nd. By comparison, the national median stood at $429,400, up 1.7% year over year. Boise, Idaho, fell slightly in the rankings but still posted a $494,600 median price, down 3.2% year over year.

The cost-of-housing index for 2025 Q2, which shows the percentage of the local median pretax income needed for mortgage payments, had increases across regions, with Denver (41%), Colorado Springs (37%) and Boise (39%) up 1% quarter-over-quarter, while Austin, Texas (35%) and the U.S. (37%) overall rose 2%. San Francisco surged from 64% to 72%.

Austin is interesting to me, as it has a reputation for being a hip city with high in-migration and robust economic growth. You would think it would be very unaffordable, yet it has both high-income earners and aggressive construction of affordable housing. Remember, all this data is visualized in the monthly report we send to our mail list (and you can subscribe at info@ddestrategies.org).

Another dimension of the housing story is mortgage distress. As reported by The Gazette, foreclosures are ticking up in El Paso County following the end of the Veterans Affairs moratorium.

While levels remain well below the peaks seen during the Great Recession, the roughly 60% projected increase for this year (to ~1,000 foreclosures) is a reminder that many households remain financially fragile, especially as interest rates and overall price levels have significantly risen.

On a (local) hopeful note, nonprofits in the region are stepping up. We Fortify is launching Wendy’s Village, which will provide 40 modular units for teachers and essential workers on District 2 school property. These fully furnished homes will lease for $825 a month, a dignified option far below market rates.

We Fortify is also developing Prospect Village, a supportive housing community for at-risk young adults near Fillmore  and Prospect streets, offering 280-square-foot homes at $600 a month with wraparound programming to build independence and resilience. These projects embody the kind of innovation Colorado needs to address its housing crisis.

Circling back to the macroeconomic environment, I would say the U.S. economy is at a pivotal moment right now in terms of whether it will fall into or evade stagflation. Price levels will be key, and this is why I emphasize both the CPI and PPI.

It seems unlikely to me that price levels will not increase, and even marginal increases strain the majority of U.S. households and businesses, which places downward pressure on overall economic growth (equaling stagflation). We are now far removed from the post-pandemic, fiscal-stimulus and high job-mobility days.

Those buffers drove the economy’s “resilience,” which may buckle under additional pressures.