Quick Overview

  • The Conference Board said Thursday that the highest tariffs since the 1930s are weighing heavily on the economy, slowing GDP growth to 1.6% this year. The organization also noted that its Leading Economic Index fell in August by the most since April.
  • The organization said import tariffs began to weaken economic growth in the first half of this year and will continue to be a drag until the first half of 2026. Declines in new manufacturing orders, residential building permits, shorter manufacturing workweeks, and weaker consumer expectations for business conditions all weighed on the index and point to slower GDP growth ahead.
  • "One of the main drivers of this slowdown is tariffs," said Justyna Zabinska-La Monica, senior manager of business cycle indicators at the Conference Board, in a statement. "Labor market dynamics also weighed on the index, with an increase in unemployment insurance claims," she added.

In-Depth Analysis

Federal Reserve Chair Jerome Powell pointed to a softening labor market on Wednesday after policymakers cut the benchmark interest rate by 25 basis points to a range of 4% to 4.25%. Citingweak employment marketdata, they forecast two more 25-basis-point rate cuts this year.

"Over the past three months, nonfarm payroll growth has slowed significantly to just 29,000 jobs per month," Powell said at a press conference following the Fed's policy decision.

"Labor demand has softened, and the recent pace of job creation appears to be below the 'breakeven' level needed to keep the unemployment rate unchanged," he said.

"In this less dynamic and somewhat softer labor market, downside risks to employment appear to have risen," Powell said.

While warning of employment risks, Fed officials projected in their dot plot that by the end of 2025 they willlower the federal funds rateto 3.6%, 0.3 percentage points lower than the June forecast.

Similar to the Conference Board, central bank officials forecast GDP growth of 1.6% this year. They expectthe unemployment rate to rise from 4.3% to 4.5%by the end of this year, before easing to 4.4% next year and 4.3% in 2027.

The Fed's preferred inflation gauge—the personal consumption expenditures (PCE) price index excluding volatile food and energy prices—could fall from 3.1% this year to 2.6% next year, 2.1% in 2027, and then reach the central bank's 2% target in 2028.

Unlike the Conference Board, Powell did not view tariffs as a drag on growth. However, he warned that import tariffs could be more than a temporary driver of inflation.

"Higher tariffs have begun to push up prices in certain goods categories, but their overall impact on economic activity and inflation remains to be seen," Powell said.

"A reasonable baseline scenario is that the impact on inflation will be relatively short-lived—a one-time shift in the price level," he said. "But the inflation impact could also be more persistent, and that is a risk to assess and manage."

Zabinska-La Monica noted that GDP growth is heading for a "significant slowdown from 2.8% in 2024," and she said tariffs "will continue to drag on GDP growth in the second half of this year and in the second half of 2026."

The Conference Board said the LEI fell 0.5% in August to 98.4, more than expected, after rising 0.1% in July.

The index aggregates 10 component indicators, including average weekly initial unemployment claims, the S&P 500 stock index, and a credit cost index. The index is designed to signal turning points in the business cycle about seven months in advance.