Capitalize on today’s evolving market dynamics.
With markets in flux, now is a good time to meet with a wealth advisor.
September 29, 2025
Year-end review: Tax law changes, investment outlook and your financial plan
6-min read
Share:
U.S. economic activity expanded in 2025’s second quarter.
2025 projections are for continued economic growth, but likely at a slower pace than in recent years.
Consumer spending remains the key variable driving growth.
In 2025’s second quarter, the economy regained solid footing supported by trade-related activity and continued consumer spending growth. After a modest first quarter decline, second quarter Gross Domestic Product (GDP), the primary U.S. economic growth measure, rose by an annualized rate of 3.8%. 1
Falling imports drove growth. Rising net imports (the value of imported goods minus exported goods) detract from GDP. Imports surged in the first quarter as companies purchased foreign-made goods ahead of tariff implementation. A large inventory stockpile allowed companies to reduce second-quarter imports, boosting GDP. While import and export activity distorted calculations in the first half of the year, GDP grew at a solid 2.1% rate on a year-over-year basis in the second quarter, up from a 2.0% rate in the first quarter.
Consumer spending was a positive contributor along with modest growth in investment spending. 1
“Shifting imports and inventory levels are likely temporarily distorting GDP, but general activity growth remains relatively steady compared to a year ago.”
Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group
“Shifting imports and inventory levels are likely temporarily distorting GDP, but general activity growth remains relatively steady compared to a year ago,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group.
In the second quarter, consumer spending, as measured by Personal Consumption Expenditures (PCE), increased at a 2.5% annualized rate. In comparison PCE rose by 0.6% annualized in the first quarter. 2 “Solid labor markets and wage growth enable consumers to maintain spending,” notes Haworth.
Low initial weekly jobless claims indicate limited corporate layoffs. However, recent non-farm payroll figures and prior revisions indicate weaker hiring activity. Stable annual wage gains suggest ongoing purchasing power. 3
Consumer spending accounts for nearly 70% of U.S. GDP and remains the key to ongoing economic growth. 1 An important question is whether consumers maintain spending levels to keep the economy growing.
Eric Freedman, chief investment officer for U.S. Bank Asset Management Group, expresses a cautionary note. “Data shows that high interest rates and higher costs are pressuring lower income and some middle-income consumers .”
U.S. retail sales grew at an 5% in August compared year-ago levels. The pace of sales slowed slightly between April and May but rebounded in subsequent months. 4 “Consumers are hanging on and weighing how inflation will impact their buying decisions,” says Haworth.
President Donald Trump’s tariff policy impact on consumer behavior remains modest for now. While some new tariffs hit key trading partners in recent months, the President delayed many of his proposed tariffs . The overall economic impact remains uncertain, but it adds a level of risk for both businesses and consumers.
“As companies start feeling effects of tariffs, their strategic decisions could drive costs higher,” says Haworth. “Are companies bearing those costs and reducing profit margins? Are they passing costs on to consumers, potentially boosting inflation? Or are they pushing suppliers to absorb the costs?”
At their September meeting the Federal Reserve’s (Fed’s) Federal Open Market Committee cut their short-term Federal Funds interest rate target by 0.25% to 4.00%-4.25% after cutting three times in late 2024. Fed Charman Jerome Powell echoed recent comments highlighting the balance of risks between softer employment data and above-target inflation justifies less restrictive policy. In the Committee’s latest Summary of Economic projections (September 2025), it’s median 2025 GDP growth forecast rose while unemployment and inflation expectations remained unchanged. 5 In recent weeks economists raised consensus forecasts for economic growth in 2025 and 2026, according to Bloomberg.
The Fed will next consider rates at its October 28-29, 2025 meeting, with markets implying an 89% chance of another 0.25% cut. Market prices also indicate high odds of an additional cut at the Fed’s December 9-10 meeting. This short-term interest rate influences borrowing costs such as auto loans and home mortgages.
Bill Merz, head of capital markets research with U.S. Bank Asset Management Group, notes labor market weakness played a larger role in the Fed’s interest rate decision this meeting and will continue to be a primary decisioning factor. “Negative labor market revisions indicate softer hiring over the last year and a half, but consumer spending remains solid,” says Merz.
Throughout 2024, the economy’s ongoing strength helped corporations meet or exceed earnings expectations. For the second consecutive year, the S&P 500 generated total returns exceeding 25%.6 Haworth says the earnings outlook remains favorable for 2025. “Economic growth appears sufficient to keep the market buoyant, though likely with a degree of volatility.” Favorable earnings and economic fundamentals helped drive the S&P 500’s strong second-quarter results. After declining 15% through early April, the S&P 500, on a year-to-date basis through September 24, generated a total returns of more than 13%. 6 During that period, investors reacted favorably to moderate inflation and unemployment and improving corporate profits.
Consider reviewing your current portfolio with your wealth management professional to determine if it’s consistent with your long-term goals and positioned to meet your needs in today’s market and economic environment.
Note: Diversification and asset allocation do not guarantee returns or protect against losses. The Standard & Poor’s 500 Index (S&P 500) consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The S&P 500 is an unmanaged index of stocks. It is not possible to invest directly in the index. Past performance is no guarantee of future results.
A recession is a significant and prolonged downturn in economy activity. Some define a recession as two consecutive quarters of declining Gross Domestic Product (GDP) growth. However, more complex formulas are often used. The accepted arbiter of a recession, the National Bureau of Economic Research (NBER), considers a variety of measures to determine a recession’s timing and length. These may include nonfarm payrolls, industrial production and retail sales, along with key measures such as GDP. Quite often, the NBER makes a final recession determination months after it begins.
The most recent recession was an unusual one, related to the start of the COVID-19 pandemic. It lasted only from February through April 2020, one of the shortest recessions on record. But it also was one of the most severe. According to the U.S. Bureau of Economic Analysis, the U.S. economy declined at an annualized rate of 5.5% in 2020’s first quarter and declined again by 28.1% (annualized) in the second quarter. However, it quickly rebounded, growing by a 35.2% annualized rate in the third quarter. This was an unusual circumstance related to the partial closing of many businesses and schools and the sudden layoff of workers in response to the onset of the pandemic, followed by a rapid reopening for most businesses. The previous recession occurred more than a decade earlier, the so-called Great Recession of 2007-2009. This recession was tied to the financial crisis that rocked the global economy for an extended period.
While it is difficult to predict a recession in advance, the current state of the economy makes the possibility of a recession in the near term appear remote. “It seems likely the economy may avoid a recession in the near term, though we can expect that real Gross Domestic Product (GDP) growth will remain modest over time,” says Matt Schoeppner, senior economist at U.S. Bank. In 2024’s first quarter, the economy grew at an annualized rate of 1.6%, but improved significantly in the second quarter, growing at a 3.0% annualized rate, followed up with 3.1% annualized third quarter GDP growth and 2.4% fourth quarter 2024 annualized growth. After a first quarter GDP decline of 0.5% (annualized), the economy rebounded in the second quarter, growing by a 3.8% annualized rate. 1
Get weekly market insights from Eric Freedman, chief investment officer for U.S. Bank Asset Management Group.
We can partner with you to design an investment strategy that aligns with your goals and is able to weather all types of market cycles.
U.S. Bureau of Economic Analysis, “Gross Domestic Product, 2nd Quarter 2025 (Third Estimate),” September 25, 2025.
U.S. Bureau of Economic Analysis.
U.S. Bureau of Labor Statistics; U.S. Department of Labor.
U.S. Census Bureau, “Advance Monthly Sales for Retail and Food Services,” September 16, 2025.
Federal Reserve Board of Governors, “Summary of Economic Projections,” released September 17, 2025.
S&P Dow Jones Indices. As of September 25, 2025.
Investment and insurance products and services including annuities are:
Not a deposit • Not FDIC insured • May lose value • Not bank guaranteed • Not insured by any federal government agency.
U.S. Wealth Management – U.S. Bank is a marketing logo for U.S. Bank.
U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.
The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.
U.S. Bank does not offer insurance products but may refer you to an affiliated or third party insurance provider.
U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.
Equal Housing Lender. Deposit products are offered by U.S. Bank National Association. Member FDIC. Mortgage, Home Equity and Credit products are offered by U.S. Bank National Association. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice.
This link takes you to an external website or app, which may have different privacy and security policies than U.S. Bank. We don’t own or control the products, services or content found there.
Opt out of behavioral advertising.
Something went wrong. Please try again later.
Please enter a valid email address.
You have successfully opted out.
We use tracking technologies, such as cookies, to gather information that helps us understand how visitors interact with our website. We also use this information to deliver advertising on our site and other sites. To opt out of these tracking technologies on our site, select the “Opt out” button.
We use your email address to advertise to you on third-party platforms such as search results and social media sites. To opt out of this behavioral advertising, enter your email address in the “Email address” field and then select the “Opt out” button.
We also honor opt-out preference signals, such as the Global Privacy Control, which communicate your opt-out preferences to the websites you visit.
Optional
Please note: You must repeat this opt-out process if you visit our site from a different computer or device, have multiple email addresses or clear cookies on your browser.