Charles Steindel

State labor markets were very little changed in May. No state reported a statistically significant change in jobs. Three states (Iowa, Massachusetts, and Virginia) had statistically significant increases in their unemployment rates, while two (Indiana and New York) had statistically significant declines. None of these moves were larger than .2 percentage points. The highest unemployment rates were in DC (5.9%), Nevada (5.5%), Michigan (5.4%), California (5.3%), and Kentucky (5.0%), though Kentucky’s rate is not deemed statistically different than the national average of 4.2%. Hawaii, Montana, North Dakota, South Dakota, and Vermont had unemployment rates under 3.0%, while South Dakota’s 1.8% was yet again the lowest in the nation.

Puerto Rico’s unemployment rate was unchanged at 5.5% and the island’s job count moved up by 2,000.

State Labor Markets in May 2025

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

Optimized for precision analytics, our data is seamlessly integrated with Microsoft Office and all leading statistical packages through our DLX® software and platform independent HaverView™ website. We further offer direct database feeds, client server or cloud-based delivery, and RESTful API.


Privacy Policy

Disclaimer

Contact us

A premier time series data platform for the global strategy, research, and quant communities. 

New York

London

Singapore

Tokyo

Economy in Brief

Viewpoints

Contact Us

Our Data

Our Products

What We Do

Our Authors

About Us

Data News

Resources

Release Calendars

Training Center

Webinars

Newsletters

Download Software

For Clients

Live Updates

Mickey D. Levy

The Fed just released its latest quarterly report on the balance sheet of households and nonprofit organizations, and the stunning magnitude of household net worth is one reason why consumer spending has remained resilient. Household net worth dipped modestly in 2025Q1 with the stock market correction, but remains staggeringly high, and with the stock market recovery and continued rise in residential home values, it likely will rise to another record high in Q2. Amid uncertain times, it continues to support consumer spending.

Real (inflation-adjusted) disposable personal income is the primary driver of consumption.  Most households spend the vast majority of their DPI and save a small portion.  Wage and salaries, the driving force of DPI, have benefited by increasing real wages and continued growth of employment. DPI has risen 36% since pre-Covid, materially faster than the cumulative 34% rise in the CPI.

Changes in household net worth--the value of real estate and financial assets, net of all debt--affect the propensity to spend disposable income.  Increases in household net worth increase the propensity to spend disposable income (and reduce the rate of personal saving) while marked declines in household net worth lead households to more (spend less) and replenish their wealth.  Workers who lose their jobs or incur losses in income draw down their savings to smooth their consumption, while others (particularly older people) "dissave" and spend on an array of goods and a lot of services.

A one (1) percentage point change in the rate of personal saving can have dramatic impact on the rate of growth of consumption, resulting in “sluggish” or “robust” consumption.  The increases in household net worth in recent years has raised consumption and reduced the rate of personal saving, just the opposite of the years following the Great Financial Crisis, when households saved a higher portion of their DPI in response to the sharp declines in households’ financial wealth and the value of real estate (Chart 1). That period followed the pre-GFC period of soaring home prices and stock market, which fueled strong growth in consumption and low rates of saving.

The stunning magnitude of household net worth in the Fed’s quarterly report on the balance sheet of households and nonprofit organizations is one reason why consumer spending has remained resilient. Household net worth dipped modestly in 2025Q1, but remains staggeringly high, and with the recovery of the stock market and continued rise in residential home values, it likely will rise to another record high in Q2.

250616ML1.jpg

The primary factor driving consumption is real (inflation-adjusted) disposable personal income.  Most households spend the largest portion of their DPI and save a small portion.  DPI is driven primarily by wage and salaries.  Real wages and employment have continued to rise. DPI has risen 36% since pre-Covid, materially faster than the cumulative 34% rise in the CPI. Changes in household net worth--the value of real estate and financial assets--affect the propensity to spend disposable income.  Some households occasionally draw down their savings to smooth their consumption, while others (particularly older people) "dissave" and spend on an array of goods and services.

Obviously, wealth is spread unevenly, as splashy headlines and data on the .1 percenters attest.  However, the U.S. Census Bureau surveys reveal that a surprising number of households have accumulated a substantial amount of net worth (An estimated 18 million have household net worth exceeding $1 million.)  In addition, between 40%-50% of household net worth is held by people 70 years old and older, and their assets are flowing into the economy through a number of channels, including charitable contributions, gifting and required distributions from retirement accounts (that are counted in disposable income).

A critical issue currently facing the economy is how will the imposition of tariffs hit consumption. The consensus is expecting a significant hit, associated with the higher inflation of tariffs and the negative impact on jobs and disposable income. Is it possible that the high level of household net worth will provide a buffer and mitigate the magnitude of any downturn?

Here's a few charts of the highlights of the report.

Household net worth declined in 2025Q1 by $1.6 trillion, but remains at a staggering $169.3 trillion (Chart 2).  This is 7.6 times higher than the current level of disposable personal income of $22 trillion, well above its historical average and its average before the Covid pandemic (Chart 3).  And DPI continues to grow significantly faster than inflation, reflecting primarily rising real wages and job gains (Chart 4).

250616ML2.jpg

250616ML3.jpg

250616ML4.jpg

Of the total household net worth, $34.5 trillion is in residential real estate.  Homeowner real estate value is $47.9 trillion and outstanding mortgage debt is $13.4 trillion (Chart 5).  Home values have soared in the 2020s while the dollar amount of outstanding mortgages has risen only modestly.  While the value of real estate holdings are a relative small share of total household net worth, some studies have shown that before the GFC, changes in real estate values had a much larger impact on consumption than a change in financial wealth of the same value.

The vast majority of the rest is wealth in financial assets, including stocks, bonds and privately-owned assets.  The value of public equities held by households exceeds $65 trillion (Chart 6).

250616ML5.jpg

250616ML6.jpg

In addition, households hold a significant amount of liquid assets.  As shown in Chart 7, households currently hold nearly $20 trillion in deposits, currency and money market fund shares.  This represents a dramatic rise from their pre-pandemic level.

250616ML7.jpg

To conclude, history shows that changes in household net worth are a significant factor driving the trajectory of consumer spending.  In the current environment of high uncertainty generated by the imposition of tariffs and the erratic policymaking of President Trump, it’s important to include the wealth effect in any equation of consumer spending.

Household Net Worth and Consumer Spending Resilience

Joel Prakken

Before the 2024 presidential election my uncontroversial view of the near-term economic outlook was that real GP would grow near 2% for the next few years with the economy remaining near full employment, inflation subsiding towards 2%, and the Fed gradually cutting its policy rate. I assumed the personal provisions of the Tax Cuts and Jobs Act (TCJA) would be extended beyond 2025, and that both the limitations on state and local tax (SALT) deductions and the temporary business provisions in TCJA would sunset as scheduled under current law.

Now Congress is debating the One Big Beautiful Bill Act (OBBBA) while courts decide the legality of new tariffs imposed by the Trump Administration.  Here I offer thoughts on how, directionally, these policies, if enacted, would shift my view of the near-term outlook for real GDP growth. To organize my discussion, I’ll group the policies like this:  
•	**OBBBA**
o	Extend TCJA 
o	New tax cuts 
o	New tax increases 
o	Increased spending by the Department of Homeland Security
o	Spending cuts, including Medicaid
•	**New tariffs**

Let’s begin by asking how much failure to extend TCJA might undermine near-term growth.  I’m skeptical of estimates suggesting the impact to be large but, given limitations here on space, a picture is worth thousands of words. The nearby chart shows annual real GDP growth from 2011 through 2024, including the first two years (2018 and 2019) when TCJA was in effect, but before COVID punctuated the near-term outlook.  Then, like today, the economy was near full employment with inflation near the Fed’s 2% target. I don’t see a significant pickup in growth during those two years even though, as its centerpiece, TCJA cut the corporate tax rate to 21% permanently.  Perhaps not all ceteris are paribus here, but would I expect failure to extend the other provisions of TCJA to have a big negative impact on near-term growth? No and in any event, as mentioned above, I expected the personal provisions of TCJA to be extended.

To help finance the reduction in the corporate tax rate, TCJA made other business tax cuts temporary and also included subsequent business tax increases. For example, under current law “bonus depreciation,” which has fallen from 100% in 2018 to 30% in 2025, ends next year.  Limitations on deductions for interest and depreciation of R&D expenditures were implemented in 2022 and 2024.  Here OBBBA would not extend current policy but rather would revive the initial TCJA provisions for five years. It also makes the TCJA treatment of certain foreign earnings permanent.  I’d not assumed these “extensions” of the business provisions of TCJA, so I consider them new tax breaks that would boost my forecast.

250610JP1.jpg

OBBBA also includes new temporary tax cuts. For individuals, important new provisions are no taxes on overtime pay or tips for five years, and tax breaks for seniors. I consider these a modest stimulus to consumption.  For businesses, important new provisions are the expensing of construction spending on manufacturing plants and an expansion of Section 179 expensing of equipment. These, too, are a near-term stimulus. Before seeing the impact on construction of the tax credits that were included in the Inflation Reduction Act (IRA) for the production of chips and batteries, I was skeptical that structures investment responded much to tax incentives. The expensing of structures is not as strong an incentive as a tax credit, but now I’d expect to see a measurable impact on construction in the manufacturing sector, another “plus” for the forecast.

OBBBA rescinds most of the “green” credits and subsidies included in the IRA and limits SALT deductions.  I consider these new tax increases. Regarding rescission of IRA provisions. The macro models I’ve worked with are pretty good at sizing the macro impact of changes in federal spending and statutory tax rates, but not so good at evaluating the effects of tightly targeted credits and subsidies. This is partly because the main result of such credits and subsidies is the microeconomic reallocation of resources, not an increase in GDP.  Still, I count rescission of credits and subsidies in the IRA as a negative for the near-term outlook.

Under OBBBA the Departments of Defense and Homeland Security (DHS) would receive spending increases, while the Department of Education and the Medicaid program would see bigger decreases. The cuts in Medicaid will result directly in lower consumer spending on healthcare services, a negative for the outlook. Perhaps ironically, increased spending by the DHS, if used to expand a crackdown on immigration and immigrants, would lead to slower economic growth quickly by shrinking the labor force. It’s hard to put a number on this effect, but already growth of the foreign-born workforce is slowing. Press reports suggest the Administration wants to increase daily apprehensions of undocumented immigrants from the recent 1,000 to 3,000. Over two years might reduce the labor force by ¾ million persons.

Finally, tariffs. It is speculative, but I think not unreasonable, to assume in the forecast at least a new 10% tariff on goods. My reasoning is that even if courts disallow the tariffs as emergency measures, the Administration, citing the 1974 trade act, will try to impose tariffs of up to 15% on the half a dozen or so countries with which the US runs the largest trade deficits.  This is a huge tax increase. The Congressional Budget Office (CBO) estimates around $200 billion per year through 2034. It is an unambiguous negative for near-term growth, potentially exacerbated if the Fed responds to the resulting inflation impulse by raising interest rates.  Furthermore, imports of goods are disproportionately concentrated in capital goods, the prices of which would rise sharply under the tariffs, undermining the new investment incentives included in OBBBA.

Would the stimulus from extended and new tax breaks in OBBBA outweigh the drag from rescinding portions of the IRA, cutting spending, and sharply raising tariffs?  A general way to address this question is to consider the net impact of these policies on the deficit based on “scores” published by CBO and the Joint Committee on Taxation (JCT). I’ve summarized these through 2030 in the nearby table.  Every year the policies new to my forecast would, on balance, reduce the deficit, a fiscal contraction that would encourage me to shade down my forecast of real GDP growth over the next few years. That’s before including any adverse impact on growth from the Administration’s policies on immigration or considering the deleterious effects of the uncertainty surrounding the Administration’ policy initiatives.

250610JP2.jpg

How much would I nudge down my near-term forecast to reflect these policies? Only modestly. In that regard I’m reminded of advice once given to an audience by Rudy Penner, former Director of CBO. When assessing the impact of policy changes on the economy, he said, average your best estimate with zero.

**A PDF version** of this commentary is available [here](https://static.haver.com/Haver_Commentary_On_the_One_Hand_OBBBA_061025_519bcd985f.pdf).

On the One Hand, OBBBA; On the Other, Tariffs

Andrew Cates

**When the Balances Stop Balancing**

In the global economy, nothing ever balances itself — it must be balanced. And the tool we use to understand that process is the financial balances identity:

(Private Sector Balance) + (Government Balance) + (Current Account Balance) = 0

This deceptively simple equation reminds us that the financial positions of households, businesses, governments, and the rest of the world are always interlinked — one sector’s deficit must be matched by a surplus elsewhere. But when policies distort trade and capital flows, they don’t eliminate this identity. They just shift the burden of adjustment — often suddenly and painfully — to another part of the system.

We’re now entering such a phase. As we explored in a previous piece (see [the bond market and productivity](https://www.haver.com/articles/the-bond-market-is-also-asking-a-bigger-question-about-productivity)), the global economy is confronting overlapping questions about how — and where — capital will be absorbed. That blog argued that it’s not simply a question of whether savings adjust (they must), but rather what mix of prices, policies, and expectations will force that adjustment — particularly as governments and firms simultaneously reach for the same pool of private capital to fund deficits and an AI-driven capex surge.

These concerns sit at the heart of what this next piece explores. Around the world, governments are pulling financial levers in conflicting directions. The United States is simultaneously contemplating financial transaction taxes, introducing punitive investment measures, and expanding fiscal deficits. Europe is loosening its purse strings in the name of strategic autonomy, while fast-tracking plans for a Savings and Investment Union that would re-anchor more capital within its borders. And China, still deeply mercantilist, is doubling down on export-led growth, capital controls, and state-directed investment — while keeping domestic consumption artificially suppressed.

Overlaying all this is a sharp resurgence in protectionist trade policy, with the United States now imposing tariffs across a wide swathe of imports. These frictions are not just policy noise — they are tearing at the global capital recycling mechanisms that once allowed persistent imbalances to be absorbed without systemic rupture.

As we wrote last time, markets may be pricing in an AI-led productivity renaissance — but if that narrative falters or is undercut by misaligned financial flows, the repricing could be swift and severe. And here’s the real concern: the fragile scaffolding that once allowed the world to function with these imbalances is now being dismantled — leaving a system where capital is needed in one place, unwanted in another, and increasingly blocked from flowing freely.

**The United States Closes the Financial Tap**

Suppose the US implements a tax on financial transactions or introduces new restrictions on foreign portfolio investment. This would mark a sharp reversal from decades of financial openness, fundamentally challenging the US model of attracting global capital to fund persistent fiscal and current account deficits.

Recent policy proposals, including those under the so-called "Big Beautiful Budget" clause and Section 899 of the Internal Revenue Code, point to a new willingness to weaponize financial channels. Section 899 allows for punitive taxation—so-called "revenge taxes"—on investors from countries deemed to have imposed discriminatory measures against the US. These steps create uncertainty for foreign capital and increase the risk premium on US assets.

If capital inflows shrink, the identity demands that either:
•	The current account deficit shrinks (via export gains or import compression),
•	The government deficit shrinks (unlikely given current policy), or
•	The private sector saves more than it invests.

This would strain the US economy. The dollar would likely weaken. Treasuries might lose some of their safe haven appeal, especially if yields rise to compensate for reduced foreign demand. Liquidity premia would widen. The US could no longer rely on the rest of the world to finance its deficits cheaply and reliably.

**US Fiscal Expansion Without Financing**

Now consider a parallel development: a renewed US fiscal expansion driven by tax cuts and defence spending. The federal deficit widens further. But with capital inflows potentially constrained, the private sector—households and corporations—must absorb the gap.

This creates a contradiction. Expansionary fiscal policy often tends to reduce household saving (more income, more consumption) and encourages firms to invest. But the financial balances identity demands the opposite: that the private sector save more to offset government dissaving and a flat or shrinking current account.

If private savings don’t rise, interest rates must. The result: pressure on equity and bond markets, and a risk that the US enters a cycle of high borrowing costs just as its productive potential hinges on long-term investment.

250605AC1.jpg

**The Capital Hunger of the AI Revolution**

This imbalance becomes more acute when considering the capital demands of emerging technologies. AI is no longer just software — it requires hyperscale data centres, GPU clusters, semiconductor fabs, grid-scale power delivery, and secure digital infrastructure. This is physical, capital-intensive investment.

In theory AI could reignite productivity growth, offering a partial antidote to years of stagnation in output per worker. But in practice, the realization of these productivity gains is conditional on massive and sustained upfront investment. Generative AI, large language models, and the broader automation ecosystem depend on an extensive physical foundation: hyperscale data centres, cutting-edge semiconductor supply chains, and redundant, high-capacity electricity networks. Crucially, these infrastructures are not energy neutral. Training advanced AI models consumes vast quantities of electricity — often exceeding the daily consumption of thousands of households — while running inference at scale requires constant cooling and power reliability.

With foreign capital inflows constrained and fiscal resources increasingly tied up in politically motivated programs like tax cuts or defence spending, there is little room for public sector leadership in financing this transition. That means the burden of investment must fall on domestic private savings — households and firms already under pressure to offset public dissaving. This creates a dual bind: the very sectors tasked with funding the AI boom are also expected to increase their net saving to keep the macro-financial system stable. The result is a tension between technological ambition and macroeconomic reality, one that risks stalling transformative progress just as its potential begins to emerge.

So while households are asked to save more to offset public dissaving, they must also help fund the most capital-hungry industrial transition since electrification. The likely result: rising real interest rates, investment bottlenecks, or deferral of transformative technologies due to macro-financial mismatches.

**Europe Loosens Up: A Regional Realignment**

Europe, too, is shifting. Defence spending is potentially rising. Green industrial policy is taking root. For decades, the EU was a surplus exporter of savings — often into US Treasuries. But looser fiscal policy could reduce that surplus, keeping more capital within the eurozone.

Moreover, the EU is accelerating plans to build a more integrated capital market—through a revived push for a Savings and Investment Union. This aims to mobilize domestic savings, harmonize regulation, and create deeper, more liquid financial markets within Europe. If successful, it would further reduce Europe’s reliance on exporting capital abroad and increase its capacity to fund its own transition priorities.

From a global perspective, this compounds the US problem: less foreign saving chasing US assets, less downward pressure on the euro, and a reorientation of global capital flows away from Washington.

250605AC2.jpg

**Tariffs and the Collapse of Global Absorption Mechanisms**

Tariffs, especially those imposed by the US on China and other trade partners, reduce global trade flows. This also constrains global capital flows — since a country’s current account is the mirror image of its capital account.

If the US current account deficit shrinks because of weaker trade, it cannot continue importing capital from abroad. And if the US simultaneously refuses to cut its fiscal deficit, the burden again falls on the private sector. Less trade = less capital recycling = more strain on domestic finance.

**China’s Surplus in a Fracturing World**

China’s model remains mercantilist. It runs a persistent current account surplus, maintains capital controls, and funnels domestic saving into state-directed investment. But if the rest of the world closes its capital accounts or erects trade barriers, China's surplus must shrink.

In recent months, China has moved to stabilize its property sector, rein in local government debt, and redirect stimulus toward advanced manufacturing and technological self-sufficiency. These policies are designed to shore up domestic growth while maintaining high levels of investment. Yet they continue to suppress consumption — the very adjustment China needs to avoid further imbalances.

Without a shift to consumption-led growth, China risks generating excess saving with nowhere to go. That saving then depresses global returns, fuels overcapacity, and worsens geopolitical tensions as China seeks new markets and influence.

250605AC3.jpg

**When Global Adjustment Becomes a Zero-Sum Game**

The financial balances identity will always hold — but how it holds matters. Right now, the world's three economic giants — the US, China, and the EU — are each pursuing policies that rely on other regions absorbing the adjustment burden. But there is no longer a clear absorber of last resort.

If capital can't flow in, and governments won't reduce deficits, the private sector must fill the gap. That means:
•	Households saving more, consuming less
•	Companies scaling back investment or diverting funds away from productivity-enhancing projects
•	Higher real interest rates to equilibrate mismatches

This becomes even more dangerous in an era of AI, where the need for long-term investment is high, but the willingness and capacity to fund it is undercut by misaligned global balances.

In short: the global economy isn’t running out of capital. It’s running out of places where capital can go freely, efficiently, and productively.

**Investment Implications**

For asset allocators, the unravelling of global capital and trade mechanisms implies a more volatile and uneven investment landscape. The relative predictability of global capital flows — with US assets serving as the primary absorber of foreign savings — can no longer be taken for granted.

For equity managers, the likely rise in real interest rates and reduced liquidity conditions will pressure valuations, particularly for capital-intensive growth sectors reliant on cheap financing. AI, while a long-term productivity tailwind, faces a capital bottleneck that may delay the realization of returns. Focus may shift toward firms with robust balance sheets, localized supply chains, and access to stable domestic financing.

Bond investors face a dual threat: rising supply from fiscal expansion and waning foreign demand. Duration risk is now more sensitive to policy credibility and geopolitical sentiment than to conventional inflation-fighting expectations. US Treasuries may no longer serve as the unchallenged safe haven of choice.

For traders, these developments open up opportunities in FX volatility, relative rate plays, and country-specific risk premia. The dollar faces growing asymmetrical downside risk. With foreign capital inflows disincentivized, fiscal deficits widening, and the private sector strained, the dollar may become a key adjustment valve. While short-term bouts of strength are possible, particularly in risk-off episodes, the structural trajectory is tilted toward depreciation — a shift that could fuel broader volatility across rates, equities, and emerging markets. Volatility in EMs could spike as global surpluses dry up.

In a world of fractured flows and constrained absorption capacity, capital will become more selective — and so must those who manage it.

Rebalancing Act: How Global Policy Shifts Are Rewriting the Rules of Capital and Trade

Sharmila Whelan

Vietnam’s economy has made impressive strides and is now nearly a third larger than it was on the eve of the pandemic. In 2024, it grew just above its potential rate—7% versus a 10-year pre-pandemic average of 6.5% per annum. That said, the best may be behind it. In Q1 2025, growth moderated to 6.9% year-on-year, down from 7.6%, with consumption, investment, exports, and imports—an important lead indicator of domestic demand—all softening.

250604SW1.jpg

Source: Haver Analytics & Westbourne Research

Yet, the economy has held up better than both the dong and the stock market. Vietnamese equities plunged 17% after Trump’s April 2nd “Liberation Day” tariff announcement. But following the subsequent 90-day pause on reciprocal tariffs, the market not only recovered all its losses but rallied further.

**In the Trade War Crossfire**

Vietnam ranked lowest in our assessment of trade war vulnerability, which included 16 countries spanning the EU, BRICS, Canada, and Mexico. Unless Vietnam negotiates a trade deal that satisfies Trump within the 90 days pause period, its exports risk being hit with the second-highest effective tariff rate—46%—after China.

Vietnam is on the hook, and its room for manoeuvre is limited. Its trade surplus with the U.S. was the fourth-largest in 2024, after China, the EU, and Mexico, and has been trending higher for four consecutive years. Nearly one-third of its exports were bought by U.S. consumers last year—making it the third-most dependent exporter to the U.S. after Mexico and Canada.

This reliance exposes the broader economy. With gross exports accounting for 88% of GDP—higher than any of the other 16 countries—the fallout from tariffs would not be confined to the export sector but would have economy-wide ramifications.

Trump’s main grievance with Vietnam is encapsulated in trade flow asymmetries (Figure 2). Vietnam exports far more to the U.S. than it imports—only 4% of its total imports come from the U.S., compared with nearly 40% from China. This disparity has led to concerns that Chinese exporters may be circumventing tariffs by routing goods through Vietnam.

250604SW2.jpg

Figure 3 shows Vietnam’s export cycle is in an upswing, with U.S. demand as the primary driver. This underscores Vietnam’s vulnerability to both a U.S. economic slowdown and to higher U.S. tariffs.

250604SW3.jpg

**Who Holds the Leverage?**

While it may seem the U.S. holds all the trade leverage, options are limited for both sides. Trump can pressure Vietnam to lower its tariff rates, agree to fairer trade terms, and perhaps increase energy and industrial imports from the U.S. However, from a cost perspective, exporting U.S.-made goods remains unviable—Vietnam’s production costs are nearly 47% lower.

Vietnam also has little to offer that aligns with Trump’s broader goals of reshoring high-value manufacturing and job creation. Unlike Korea, Japan, Taiwan, or even China, Vietnam’s exports are concentrated in low-value, labor-intensive sectors—garments, footwear, agricultural goods, and simple manufactured items. These sectors do not create high-paying jobs nor contribute meaningfully to U.S. national security or strategic interests.

**The Domestic Economy**

Vietnam may be the worst-positioned in the current trade war, but it remains a _high-impact, moderate-risk_ scenario. First, it has every incentive to negotiate. Second, while exports are important, domestic demand remains a key growth driver. Consumption accounts for 55% of GDP and investment another 34%, together making up 99% of economic activity.

Still, there are signs that growth may continue to slow. Corporate profits are in a downcycle. Although balance sheets are solid, they lag behind regional peers. Notably, free cash flow per share has been negative for two years, and liquidity conditions are tightening. This, combined with weaker profitability, points to a likely further slowdown in investment spending.

250604SW4.jpg

For now, domestic credit growth is holding up, led by construction and household borrowing. But credit to trade and manufacturing sectors has softened (Figure 5). PMI surveys show manufacturers growing more cautious, lowering selling prices, and tempering expectations—not just due to weak external demand, but also lacklustre domestic conditions.

250604SW5.jpg

Headline and core inflation have risen, signalling two key concerns. First, higher living costs are likely to weigh on discretionary spending. Second, monetary policy is likely to remain on hold until there’s more clarity on growth and inflation. Since March 2023, the central bank has cut its discount rate by 150bps to 3%, where it has remained since June 2023.

250604SW6.jpg

**Vietnam’s Only Option**

In this U.S.-led tariff war, Vietnam’s only real option is to concede. For Trump, a revised trade agreement would be a symbolic win. But the tangible gains for the U.S. would be limited.

•	Are Vietnamese firms going to relocate to the U.S.? No.
•	Will they create high-paying jobs for Americans? No.
•	Are any Vietnamese industries strategically important to U.S. national security? No.
•	Will Americans stop buying low-cost goods from Vietnam? Unlikely.

U.S. firms cannot compete with Vietnam’s cost base, and any large-scale shift would come at a cost to U.S. consumers.

At home, Vietnam’s growth is likely to moderate as slowing investment and a murky global outlook begin to affect broader economic activity. That said, a recession is not on the cards.

**Bottom Line: Overweight Vietnamese Equities**

Despite trade war risks, Vietnam’s structural growth story remains intact. The domestic economy provides a cushion, and market valuations remain attractive. For long-term investors willing to ride out volatility, Vietnam remains a compelling opportunity.

State Labor Markets in May 2025

Charles Steindel

More Viewpoints

Household Net Worth and Consumer Spending Resilience

On the One Hand, OBBBA; On the Other, Tariffs

Rebalancing Act: How Global Policy Shifts Are Rewriting the Rules of Capital and Trade

Vietnam In Trump’s Trade War