US Economy: Weekly Commentary – July 28, 2025

US Market Review

Treasuries were mixed. China’s U.S. holdings fell below the UK. Equities rose broadly, led by healthcare. The dollar weakened. Oil prices dropped amid oversupply and weaker demand.

Treasury markets were mixed last week, with short-term yields moving higher while long-term bonds posted the largest price gains. China’s holdings of U.S. Treasuries have fallen sharply, now less than half their peak, dropping the country to third place behind the United Kingdom, which has surpassed China as the second-largest foreign holder after Japan. This shift underscores growing reliance on allied nations to absorb U.S. debt, even as the dollar faces long-term depreciation risks. Meanwhile, Japanese 10-year government bond yields rose to their highest level since 2008 amid mounting fiscal concerns, following a U.S.-Japan trade agreement announcement that may involve Japan using domestic investment funds to partially offset U.S. auto tariffs, effectively subsidizing the deal.

Equity markets recorded broad-based gains for the week. Large-cap stocks advanced 1.45%, while small- and micro-cap stocks rose 0.90% and 1.10%, respectively. The “Magnificent 7” delivered a 1% increase. Sector performance was uniformly positive, led by healthcare (+3.5%), followed by real estate (+2.25%) and industrials (+1.75%). Technology was the laggard, posting a modest gain of just 0.4%.

In currency and commodities markets, the U.S. dollar depreciated 1% against the euro. WTI crude oil fell 3.33%, pressured by soft demand signals from both the U.S. and China, persistent concerns about global oversupply, and the prospect of additional barrels from Venezuela and Iran as Chevron and others prepare to resume limited operations amid ongoing diplomatic progress. These factors were compounded by a surprise drop in U.S. capital goods orders, declining tax revenues in China, and OPEC+ maintaining its output increase strategy to preserve market share, adding further downward pressure on prices. Gold slipped 0.51%, while Bitcoin edged higher by 0.13%.

US Market Views Synopsis

U.S. growth accelerated in July 2025 due to strong services demand. Manufacturing weakened. Inflation rose. Business confidence fell. The housing market slumped amid affordability issues and rising inventory.

U.S. private sector growth accelerated to a seven-month high, with the composite index rising to 54.6 from 52.9 in June, driven by strong demand in the services sector, which climbed to 55.2. In contrast, manufacturing weakened, with the sector falling to 49.5 and factory output slowing as new orders declined and employment contracted. Inflation pressures rose, largely due to tariffs, while business confidence fell to one of its lowest levels in over two years amid concerns over federal spending and inflation. Despite a projected 2.3% annualised growth rate, the widening gap between resilient services and struggling manufacturing raises concerns about the upturn’s sustainability. The housing market also showed signs of stress, as sales fell due to poor affordability, with home prices up 50% since 2020 and mortgage payments nearly doubling. Rising inventory, labour shortages, and material costs further strained homebuilders, driving down construction activity and confidence. With limited relief expected from interest rate cuts, housing-driven pressure may threaten consumer sentiment and broader economic growth.

Business Activity

U.S. growth accelerated to 54.6, driven by strong services demand, while manufacturing weakened, inflation rose, and business confidence fell amid tariff and spending concerns.

In July 2025, overall U.S. private sector output increased at the fastest pace in seven months, with a broad-based activity measure rising to 54.6 from 52.9 in June, indicating stronger growth momentum at the start of the third quarter. This acceleration was driven primarily by the services sector, where activity climbed to 55.2, also a seven-month high, supported by solid domestic demand. In contrast, manufacturing showed renewed weakness as the sector's overall performance slipped to 49.5, a seven-month low, while its output measure decreased to 51.2 from 53.1, reflecting only modest expansion. Factory new orders declined for the first time this year, and manufacturing employment fell after three months of growth. Meanwhile, overall employment continued to rise for a fifth consecutive month, led by strong hiring in services amid rising backlogs, representing the steepest increase in uncompleted work since May 2022. Price pressures intensified, with selling prices for goods and services increasing at the second-fastest monthly pace since September 2022; approximately two-thirds of manufacturers and 40 % of service providers linked higher prices to tariffs. Business confidence fell to one of its lowest levels in over two and a half years, weighed down by concerns over federal spending cuts and inflation. Although current growth suggests an annualised expansion rate of 2.3 %, up from 1.3 %in the second quarter, the widening gap between the resilient services economy and the struggling manufacturing sector casts uncertainty on the durability of this upturn.

We expect U.S. growth to accelerate, driven by strong services demand. Manufacturing may weaken, inflation could rise, and business confidence might fall due to ongoing tariff and spending concerns.

Housing Market

US home sales and construction weaken amid poor affordability and rising inventory, threatening home prices, consumer confidence, and broader economic growth despite potential interest rate cuts.

US home sales remain subdued as affordability challenges and rising supply weigh on buyer activity. New home sales in June fell to an annualized rate of 627,000, missing expectations, while existing home sales dropped to 3.93 million units, the lowest level since September. Despite a recent uptick in mortgage applications, affordability remains a major hurdle. Since 2020, home prices have increased by 50 percent, while mortgage rates have more than doubled. As a result, the average monthly payment on a 30-year fixed mortgage has nearly doubled from $1,500 to just under $3,000. Mortgage activity remains at levels comparable to those seen in the aftermath of the 2008 housing crisis and even the mid-1990s, despite a much larger population today.

The increase in housing supply is adding further pressure to an already fragile market. The inventory of existing homes for sale has risen 40 percent since 2022, while new home supply is up 16 percent. At current sales rates, it would take nearly five months to clear the existing home inventory and ten months for new homes, marking the highest levels in over a decade. This shift is beginning to impact prices, with the S&P Case-Shiller index showing consecutive monthly declines. Homebuilders are facing additional challenges as labour shortages, rising wages, and tariffs on materials like copper increase costs. As builder confidence falls and construction permits hit a two-year low, residential construction is likely to slow, posing a growing risk to broader economic growth. With limited relief expected from future rate cuts, concerns about housing-driven pressure on household wealth and consumer sentiment are growing.

We expect continued weakness in home sales and construction, with a complicated outlook driven by poor affordability, rising inventory, and limited relief from potential rate cuts.