The Summer Economy Is on a July 4th Collision Course

The headline is Hot or Not, summer economy edition. The tradeoff is all the data we are about to put in context, because on paper the economy heading into summer looks strong, and I am worried about the next three weeks.

Let me tell you why, the way we always do it here, without the green eyeshades and without boring you to tears.

Start with the four buckets

Jobs, trade, inflation, growth. Walk through them in that order and you can see the whole economy.

Jobs first. The May report was strong. 172,000 jobs added, and the previous two months revised up, which is a real 180 from the concerning trend this podcast flagged at the start of the year. Job growth looks solid through the first quarter and into the second.

Trade next. Exports hit a record $327.1 billion in April, up 2.6% from the month before. That should not surprise you if you have been listening, because the US is a net energy exporter, and with the war in Iran and the pressure on the Strait of Hormuz, our energy is in demand. The tariffs play a part too. They are reducing imports, so US manufacturers are hunting for buyers abroad.

Inflation is the one you feel every time you check out at the grocery store, and the data agrees with you. April CPI came in at 3.8%, the hottest read since May 2023. PCE, the Fed's preferred gauge, also landed at 3.8%.

Here is where it gets interesting. The Fed likes to look at core PCE, which strips out the volatile stuff, energy and food. So ask the real question. Is it appropriate to back out energy and food when energy and food are exactly what is driving prices up? The Fed will tell you this is a one-time shock from the war in Iran. I do not think it is a one-time anything, and the timeline is why.

Growth last. Q1 GDP was revised to 1.6%, down from the first estimate of 2%. A revision down sounds bad, but strip out the volatile categories, trade and inventories, and private demand actually rose 2.4%. That is the tell. What shows up on paper is not the same as what is happening in your house.

“Good” numbers? In this economy?

The job gains were concentrated in leisure and hospitality and, oddly, local government. Leisure and hospitality you can probably chalk up to World Cup and summer hiring. Local government is an outlier, and local governments are not hiring machines, so that one is unlikely to repeat. Look underneath and long-term unemployment keeps climbing, hitting a cycle high of 27.5%. People are not getting fired, so it is easy to keep a job. It is hard to find one if you do not have it.

Growth is narrow in the same way. The investment driving it is coming from a handful of companies, pointed almost entirely at AI. Normally a big investment boom is followed by a hiring boom. This one might not be, because the whole promise of the spending is productivity, which means more output from the same number of workers. And a data center is not a factory. When I was at Amazon and we opened a new fulfillment center in a region, that was about a thousand new jobs. A data center needs around a hundred people to run it. That is not an employment boom.

Then there is the consumer. People are switching steak for chicken, trading brands for generics, and that is the easy story. The harder story is that private credit is rising and savings are being drawn down. A rich credit market is a good thing when a family hits a cash crunch. It is a red flag when households are living on credit because the savings are gone. And housing, which we sometimes read as a proxy for consumer health, is cool right now. I can tell you that as someone who just sold a house in Atlanta and did not get what I wanted for it. It was nothing like 2022, when my house sat on the market for twelve hours and drew five competing offers.

Every good number was printed before the next oil shock

Here is what I actually want you to walk away with. Every strong number we just covered was printed before the next oil shock, not after it.

The US government has been leaning on temporary measures to keep energy prices down through the Iran war. We export our own energy, which lets us hedge on price, and the government has been releasing fuel from its strategic supply to keep prices from ballooning. Those measures are finite. They start running out at the end of June, which puts us on a collision course with the July 4th driving holiday.

The war in Iran started February 28th. There was a fragile two-week ceasefire, then an extension, but a permanent deal is not looking likely. Prediction markets put the odds of a permanent deal by June 30th at around 28%. I am not taking the under on that. Global oil inventories are drawing down at the fastest pace in May and June, right into peak summer demand. Brent fell about 20% in May to the low 90s and leveled out around 90 dollars a barrel on ceasefire hopes. I do not think that holds, and any bad ceasefire headline drives it right back up.

And energy is regressive. Everybody uses it, so when prices rise, lower-income households feel it most. Heading into a summer where those same households are already worried about cooling costs and feeding kids who are out of school, that is real friction in real budgets.

The trend nobody is fixing

I am going to say this every episode. The composition of the workforce matters as much as the size of it. Last year, 212,000 women left the workforce. In the first half of the year, men joined the workforce at three times the rate of women. The reasons are not a mystery. Return-to-office mandates, no flexibility, and a summer with no good options for what working parents do with their kids when school is out. I am lucky, I have the resources to get my kids somewhere safe, and even that takes an Excel spreadsheet and a beautiful-mind matrix just to free me up to make this podcast.

The one sentence

The numbers are good, the foundation under them is shaky, and the summer has a deadline. Those last two things are on a collision course, and we hit it around July 4th. Add an election cycle, a Fed meeting on June 16th and 17th under a new chair, and a ceasefire expiring in late July, and June becomes a put-up-or-shut-up month that likely decides how the economy looks for the rest of the year.

A strong month and a thin foundation are not the same thing. They can exist at the same time. That is what The Tradeoff is for.

Subscribe to The Tradeoff so you have the context before the July 4th data lands.