February 2025 — Early Signs of a Cooldown, mass layoffs tarrifs on canada and mexico

February 2025 shows some subtle shifts in the U.S. economy, hinting that the expansion from January might be slowing. The unemployment rate ticked up slightly by 0.1%, but at 4.0% it still sits just below commonly cited estimates of the natural rate (~4.25%). This keeps the labor market relatively tight, though the upward nudge may signal that the first signs of easing demand are appearing.

Inflation, meanwhile, moved closer to the Fed’s 2% target. Headline inflation fell to 2.8%, and core inflation dipped by 0.2% to 3.1%. These declines suggest that demand pressures are softening — a subtle cooling after a period of stronger consumption and tight labor conditions. It’s not a collapse by any means, but it is an early signal of decelerating economic activity.

Interestingly, inflation expectations crept up slightly, by about 0.1%. This small rise indicates that households are starting to let their cautiousness seep into their outlook for future prices. Even a minor uptick like this can influence spending decisions if consumers become more careful, contributing to the slowing demand we are beginning to see.

Personal consumption expenditures grew by 0.4%, maintaining January’s momentum. While nominal consumption is still positive, the combination of weakening inflation, slightly higher unemployment, and early signs of concern among households suggests that real consumption growth may start to moderate in the coming months.

Consumer confidence, however, shows a more pronounced shift. The Consumer Confidence Index dropped from 71.7 in January to 64.7 in February — a sharp decline likely driven by political uncertainty and renewed trade tensions, including tariffs. This decrease reflects a growing wariness among households, which is starting to influence their spending behavior.

Overall, February paints a picture of an economy moving from strength into cautious moderation. The labor market remains tight, inflation is easing, and consumption continues — but the drop in confidence and the small rise in expectations are early warnings. It’s a classic pattern of a slowdown beginning to take shape: the expansion remains, but the first cracks of deceleration are showing, and policy observers should pay attention to how these early signals develop.