The economic situation in the United States is deteriorating very rapidly, although it is not yet in recession. For me, the definition of recession is not that of economists, who say that it occurs when there are two consecutive quarters of contraction in GDP, but rather when unemployment rises and job creation is negative, i.e., when there are fewer hires than layoffs. During the previous two years, the monthly average was 240,000 new jobs, and in the last six months, the average is 131,000, with May and June falling to only 13,000.
The United States is no longer a manufacturing country, as labor costs are very high (an hour of work costs the same as a day’s work in Mexico). The services and government sectors are keeping the engine running. At present, both are slowing down their hiring. The great negotiator, President Trump, continues to use tariffs as a means of securing investment promises in the US from foreign countries and as a basis for reciprocity in the collection of import duties. The way this is done, by imposing high rates and then adjusting them, keeps uncertainty going, and both importers and manufacturers have slowed down their activity until they figure out what the real long-term rate will be.
Inflation remains moderate at 2.6% per year, although people perceive price increases to be higher than reported by the government. This combination of controlled inflation and low job creation has put a lot of pressure on Federal Reserve Chairman Jerome Powell to start lowering interest rates. Still, he has resisted until he sees the impact of the tariff programs on the economy. President Trump wants rates to be reduced immediately, as a government that owes $37 trillion and refinances almost weekly would benefit from paying less for money. The president insulted him by questioning his ability, calling him “very slow” and “timid.” Still, Powell knows that lowering rates and creating more economic activity can be inflationary and does not want to take risks until the statistical data is confirmed.
Another element of uncertainty is artificial intelligence and robotics, which are still in their infancy, and it is not yet known how many jobs they will displace in the medium and long term. Amazon has already said that in three years it will have more robots than people in its distribution centers, several companies have begun testing driverless taxis, and large laboratories have reduced their research staff due to advances in AI. Studying economic trends involves bringing together various reports and identifying indicators of the direction the country is heading in, which often point in opposite directions.
On the one hand, the labor force participation rate for the total population between the ages of 18 and 65 is at its lowest point in many years, at 62.2%; on the other hand, hourly earnings continue to grow at an average rate of 0.26% per month, slightly above inflation. The number of job vacancies fell from 8.1 million to 7.4 million, a figure very similar to the number of unemployed. Still, a machine operator in Detroit is not going to go and pick lettuce in Sacramento.
Experts have reduced the probability of a recession in the coming year from 45% to 33% and GDP growth to 2.2%, while the home affordability index has fallen 6%. Incidentally, house prices continue to rise, but at a slower pace, with an increase of 0.4% in June and 2.8% for the last 12 months. In one out of every six sales, the buyer fails to close the transaction, either because they lack the money for the down payment or because they cannot obtain a mortgage.
It is worth mentioning that in the first half of 2024, the United States collected $41.1 billion in tariffs, and in the first half of this year, that figure grew by almost 150% to $103.5 billion. Countries and companies have announced investments of nearly $4 trillion for the coming years, with $570 billion from Japan, $500 billion from the European Union, and private companies such as Apple with $500 billion and Micron with $200 billion. Interestingly, Microsoft is the second company in the world, along with Nvidia, to exceed $4 trillion in market value, more than double Mexico’s GDP.
The political situation in the United States remains highly polarized, particularly due to attacks from the left on Trump’s policies on deportation, the elimination of automatic citizenship for children of undocumented immigrants, and budget cuts to agencies with unclear objectives. On the other hand, the release of secret documents indicating a massive disinformation campaign about alleged Russian assistance to Trump in his 2016 campaign was initiated by Obama and Hillary Clinton. We are still waiting to see what will happen in the New York mayoral election, as the winner of the Democratic nomination, Mamdani, is anti-Semitic, totally communist, and his proposals to expropriate real estate, eliminate the police, and make supermarkets city-owned would be a huge step backward for the nation’s largest city.
Some other things I found interesting: Credit from brokerage houses to speculators borrowing against their portfolios exceeded $1 trillion for the first time in history. Student debt stands at $1.8 trillion, $40,000 for every student who took out a loan. The worst investment in the last three years has been in paintings or sculptures worth more than $5 million, and natural diamonds, which have fallen in price by almost 40% due to competition from industrially manufactured diamonds.
Moving on to Mexico, we continue to see a sharp deterioration in Morena’s base, with important figures such as Adán Augusto and Andy Lopez virtually disappearing, giving rise to rumors. The country still does not know how Trump’s tariffs will end, with the president stating in a mañanera that by July 31 there would be a definition of the trade relationship with its northern neighbor, supported by comments from Ebrard that Mexico had done everything it could to meet Trump’s demands, only to see the proposed date extended for 90 days. The possible renegotiation of the USMCA before the 2026 deadline is another element of uncertainty, and the persistent insecurity that prevails in the country has created an atmosphere of unease. However, business leaders have seen their businesses continue to move forward with significant sales and profits.
For the first time in several years, there are vacancies in industrial buildings on the border, a clear sign that foreign investors are waiting for clarity in the relationship between the United States and Mexico before making significant investment decisions.
As I do every month, I will separate positive and negative news about Mexico.
Positive
Analysts expect an increase in economic activity despite inflationary pressures.
The SAT collected 10.3% more in the first half of the year than in the previous year.
The CFE reported profits and did not suffer the blackouts of previous years.
May retail sales were the highest in the last three years.
Banxico’s dollar reserves reached an all-time high of $242 billion.
There will be less waste of money in elections due to the proposed electoral reform, although it is ridiculous that INE commissioners are elected by popular vote.
The International Monetary Fund raised its growth expectations to 0.2% in 2025 and 1.4% in 2026, even though the IMEF is 0.1% lower in both cases.
In the first half of the year, the government saw a 3.4% increase in revenue and a 3.8% decrease in spending.
Despite a 22.2% drop in oil revenues, PEMEX reported a profit of $3.16 billion in the second quarter.
Mexico reported total sovereign debt at the end of June of 17.797 trillion pesos, 49.5% of GDP, and the lowest relative to the size of the economy of all OECD countries. In comparison, the United States is at 108.4% of GDP.
Negatives
June was the worst month for car sales in the last 42 months.
BYD postponed its decision to build a factory in Mexico.
Pensions now account for 24% of public spending and continue to grow rapidly.
Consumer confidence is at its lowest point in two years.
Last year’s fuel theft was estimated at 177.17 billion pesos, approximately 6% of annual production, enough to pay PEMEX’s total debt to its suppliers and 44% of all gasoline and diesel tax revenue.
Foreign investors’ holdings of Mexican bonds reached a 15-year low.
Profits of public companies fell by just over 20%, and the outlook was negative due to market uncertainties.
The United States reimposed penalties on air transport, mainly due to cargo problems at the AIFA airport.
It is worth noting that the government is finally attempting to address PEMEX’s debt crisis through a debt instrument issued in the US, which is guaranteed by the federal government, creating new confidence that the oil company will not go bankrupt and will be able to lower its financial costs.
In Israel, the economy continues to show mixed signals. The technology sector continues to grow with a funding of $9.3 billion, 54% higher than in the first half of 2024, and with the purchase of a cybersecurity company for more than $25 billion. GDP growth forecasts range from 3.3% to 4.6%, much higher than in the United States or Europe, with inflation projected at 2.1% for the year. The central bank has kept the rate at 4.5%, but is expected to lower it to 4% by the end of the year. The most worrying thing is that the deficit will reach 4.9% of GDP, and debt will reach 70% of the size of the economy.
There is no doubt that the primary concern in the country is the endless war in Gaza and the situation of the hostages still in the hands of Hamas, a problem for which no solution is in sight. The historical mismanagement of social media and the media, unlike in Arab countries, has put Israel in a precarious position where misinformation about the situation in Gaza has caused many countries that were historically friends to turn their backs, recognizing or threatening to recognize a Palestinian state, which strengthens Hamas and goes against a settlement to end the conflict.
In the rest of the world, we see that China’s plan to boost its economy despite its difficult economic situation is working, with annualized growth of more than 5% and exports of $1.81 trillion, despite a 14% drop in sales to the United States. Producer prices fell 3.9% and population growth remains at just one birth per couple, which is very worrying. Investment in its Belt and Road growth project of loans or partnerships in the third world grew to $126 billion in the first half of the year, despite the inferior results of the first trillion invested in previous years.
It is interesting to note that 74% of China’s electricity generation is wind power, and that more than 50% of the cars sold in the last 12 months are electric. China is embarking on the largest infrastructure project in history, a dam for river control and electricity generation that will cost $167 billion and has already affected global cement and steel prices.
In other countries, Argentina is building a $3 trillion oil pipeline, inflation in Turkey is at 35.1% per year, the Colombian government is in crisis due to the resignation of four secretaries, and Brazil approved Lula’s tax cut and budget plans.
In the financial markets, July was a month of ups and downs. Still, in the end, there were no significant changes compared to June, with stock markets showing a slight appreciation, bonds falling moderately, gold stable at around $3,300/oz, and bitcoin at $116,000. The dollar has been strengthening and has recovered about a quarter of the 10% it lost in the first half of the year.
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