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Our Economy: The Good, The Bad, and The Ugly–Chapter Thirty–How Healthy is our Economy?

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The economy is showing mixed signals, with indicators like robust retail sales and strong GDP growth from Q2 2025 suggesting overall health, while rising inflation and a slowing labor market point to potential challenges. Consumer sentiment is notably negative, and analysts are concerned about the impact of new tariffs on prices. While the economy is resilient and outperforming many developed markets, forward-looking indicators, such as the bond market, suggest a slowdown in growth is expected, though not necessarily a recession.  

Positive Signs:

Concerning Signs:

What to Watch For:

Fears of a recession are back on investors’ minds. But predicting the onset of an economic downturn, let alone the length and severity of one, is difficult even for the experts.

As a rule of thumb, two quarters of gross domestic product contraction is generally accepted as a recession, but the official start date is declared by the Business Cycle Dating Committee of the National Bureau of Economic Research.

While we often don’t know we’re in a recession until it‘s well underway, here are some economic signals worth watching to get a sense of the economy’s health.

What Are the Key Economic Indicators?

These indicators can help give us a better understanding of where the economy and the markets stand, but they can’t perfectly predict the future. Further, many of these measures are affected by a variety of factors that may or may not point to a recession, so interpreting the data isn’t always cut and dry.

Here are some of the key indicators that economists track to understand economic health and where we might be headed.

We’ll take a closer look at where these indicators stand. Keep in mind that it can take time for the data to catch up to what‘s going on because most of our traditional economic data is released at least a month behind when it happened.

Gross domestic product is a key measure of economic health. GDP is the monetary value of all finished goods and services made within a country during a certain period, and it‘s used to estimate the size of the economy. GDP growth year over year indicates a healthy economy, while slowing growth or an outright decline can be cause for concern.

Preliminary GDP data released by the US Bureau of Economic Analysis showed that economic growth grew 3% in the second quarter of 2025, following a 0.5% contraction in the first quarter. As Morningstar senior reporter Sarah Hansen noted, that contraction was largely driven by a spike in imports, as US companies stocked up ahead of widespread tariffs.

GDP growth for the first half of 2025 is down from recent years. Morningstar Senior US Economist Preston Caldwell acknowledges that GDP tends to be volatile, but he expects the slowdown in economic growth to continue as consumers get more cautious.

Consumer spending accounts for just under 70% of US GDP. As the largest component of the economy, it is one of the main determinants of the country’s economic health. In the second quarter of 2025, real personal consumption expenditure increased by 1.4% from the previous quarter. First-quarter spending is often the lowest of the four quarters, as consumers cut back after the holidays and leading up to summer travel.

While the latest spending data doesn’t sound any alarms, consumer sentiment is still significantly lower than 2024, according to research from the University of Michigan. Consumers are pessimistic, but that pessimism hasn’t fully translated into a pullback in spending. The question that economists have is whether the spending data will catch up with how consumers are feeling.

There are multiple ways to look at the health of the US labor market, which is tied to the overall health of the economy. Job growth is a primary indicator. The monthly nonfarm payrolls report from the Bureau of Labor Statistics shows the change in the number of workers in the US, with some exceptions like farming, active military, and self-employment.

The US economy added fewer jobs than expected in July as unemployment ticked up slightly. The Bureau of Labor Statistics also made larger-than-normal revisions to the previously reported May and June numbers. With these revisions, employment in May and June combined is 258,000 lower than previously reported.

Even before the numbers were revised down, economists saw some less-encouraging signs in June’s underlying data. Morningstar’s Sarah Hansen pointed out that state and local government hiring spiked while private-sector hiring slowed. The revised data paint a more negative picture.

Inverted Yield Curve Reflects Higher Short-Term Yields

The yield curve measures the yield to maturity of bonds across various maturities. The curve normally slopes up and to the right as investors need a higher yield to take on additional risks that occur over longer time horizons. An inverted yield curve may indicate an expectation of lower interest rates, and thus lower growth and inflation, in the future.

The spread, or difference in yield, between 10-year and three-month Treasury yields is a common metric used to quantify the shape of the yield curve. A negative spread indicates an inverted yield curve because the 10-year issue has a lower yield than the three-month. Negative spreads have historically preceded recessions.

The 10-year yield has narrowly passed the 3-year, but overall short-term yields remain high. Yields at the short end are closely tied to the Fed’s short-term policy rate. When the Fed increased its short-term policy rate to fight inflation in 2022, the yields on short-term Treasury bills followed suit. Treasury yields across most of the curve rose in response to Fed rate cuts in 2024, but uncertainty has caused longer-term yields to waver in 2025.

It‘s easy to think that the stock market and the economy would always go hand in hand, but here are some reasons they don’t:

  1. The stock market doesn’t represent everyone participating in the economy, and a significant amount is owned by the wealthiest individuals.
  2. It’s disproportionately made up of large corporations, while small businesses are a major driver of the US economy.
  3. Stock prices reflect investor confidence in the future. Things like spending and employment are indicators of the current economic climate.

The stock market might reflect changes in the economy and vice versa, but the state of one doesn’t necessarily paint the full picture of the other. Still, it’s worth keeping an eye on the markets as recession concerns crop up.

After US President Donald Trump announced tariffs in early April, stocks quickly plunged over the next week, as the Morningstar US Market Index fell 20% from its highest level. Shortly thereafter, the markets bounced back in response to a 90-day pause on the tariffs. Stocks ultimately recaptured the losses from the initial fallout and continued to rally through July.

Weak jobs data and tariff news caused stocks to dip in August. Morningstar Chief US Market Strategist Dave Sekera sees ongoing trade and tariff negotiations as one of the most pressing near-term risks to the market.

How Should We Interpret Economic Indicators?

No single indicator tells the whole story of economic health, so we shouldn’t look at any one data point in isolation. Even interpreting GDP growth, which is the primary indicator of economic health, can be difficult in the short term because of noise in the data. Plus, there are nuances that may affect how we interpret what we’re seeing, and even comprehensive historical data can’t perfectly predict the future.

The economy is doing OK. So why are Americans so pessimistic about their prospects?

There is some uncertainty mostly driven by the new global tariffs, but overall the U.S. economy is doing reasonably well, economists say.

Still, Americans seem to be feeling disproportionately pessimistic about their economic prospects for reasons that aren’t totally clear to scholars — and may not be directly connected to the economy itself.

The Federal Reserve is widely expected to cut interest rates this week. Core inflation remains around 3 percent — 3.1 percent for August, according to federal data released Thursday. Unemployment hit 4.3 percent in August, above a record low of 3.4 in April 2023 but far below the pandemic high of 14.7 percent in 2020.

Those numbers aren’t great but still look “pretty good,” said Karen Dynan, former chief economist at the U.S. Treasury and a professor of the practice of economics and public policy at the Faculty of Arts & Sciences and Harvard Kennedy School.

But that sentiment appears out of sync with how most Americans are feeling: Only 25 percent believe they have a good chance to improve their standard of living, the lowest share since the stock market crashed in 1987, according to a recent Wall Street Journal/NORC poll.

More than 75 percent say they are not confident the next generation will have a higher standard of living than they do, the poll also showed.

“A lot of the pessimism doesn’t seem consistent” with the data, Dynan said.

So why the disconnect?

“It’s not that Americans or the data are wrong — consumers do have legitimate concerns. It’s that some of the financial pressures people are feeling, like increased financing costs for auto loans or closing costs on home mortgages, don’t necessarily show up in the major datasets like the Consumer Price Index,” said economist Stefanie Stantcheva, whose Social Economics Lab at Harvard studies how people understand economic issues and policies.

Government statistics tend to take a very broad view so geographic and demographic disparities or variations across industries and sectors often get overlooked, Dynan said.

“A lot of the data we have speak to conditions in the economy overall. The unemployment rate that we look at is for the nation as a whole; the GDP number is about how the entire pie is growing,” she said. “The data that we have on how individuals are doing is more limited and less timely.”

For instance, lower-income people often face higher inflation than the wealthy, something known as inflation inequality. That’s not captured by the usual economic measures, leaving economists with an incomplete picture of people’s “lived experiences” with the economy, Stantcheva said.

“A lot of people’s feeling of satisfaction and well-being is relative to what they’re used to, what they see their neighbors enjoying, and increasingly, what they see on the internet,” said Kenneth Rogoff, professor of economics and Maurits C. Boas Chair of International Economics at Harvard.

Pressure that rising financing costs for things like credit cards and car loans are putting on consumers, or anxiety over the high price of housing across the U.S. aren’t getting quantified by economic reports. Still, they are leaving many pretty grim about their economic future, especially young adults who also face an increasingly tough job market, said Rogoff.

Of late, Stantcheva notes, there’s been a rise in “zero-sum thinking” about the economy.

“This idea that if you do well, or a group of people does well, it means someone else must be doing worse, someone else must be losing. We see that much more pronounced among younger generations, not just in the U.S., also in other rich countries,” she said.

Politics also now plays an outsized role in shaping what the public knows about the economy and how they perceive it, whether negative or positive. People tend to give more weight to how their trusted political leaders or favorite news outlets characterize the economy than what government statistics seem to show, said Dynan.

A confluence of changes that consumers experience daily — like continuing high prices, remote work and other perks employers offered only a couple of years ago but have since clawed back, and staffing and funding cuts across the federal government earlier this year — are starting to be felt locally as institutions and services people see and use, like schools, healthcare, and transportation, close or face cutbacks.

While the overall economy is flourishing, there are areas that are not doing so well. One of them is health care. Since I am an Intensive Care Nurse, this trend is near and dear to me. So I will discuss the matter a bit. Because what affects our health care affects our lives.

Hospitals are laying off staff due to a confluence of factors, including: 

Financial Pressures: 

Operational Challenges: 

Regulatory Changes: Shifting healthcare policies and regulations and Increased focus on quality and patient safety. 

Industry Consolidation: 

Medicaid Cuts: 

These factors have resulted in a need for hospitals to reduce expenses and streamline operations. Layoffs are often a necessary measure to maintain financial solvency and provide quality patient care. It’s important to note that not all hospitals are laying off staff, and the situation varies widely depending on location and other factors. 

Hospitals and long-term care facilities throughout the United States have recently reported workforce reductions that include nurses, aides, and other frontline healthcare staff. In the past several months, health systems such as Providence Swedish, UC San Diego Health, and Kaiser Permanente, among others, have announced layoffs in response to financial pressures, increased operational costs, and concerns over future changes in federal reimbursement rates.

Providence Swedish: CNA Layoffs in Washington

Providence Swedish, which operates in seven states, recently announced a significant restructuring effort that includes the elimination of 600 full-time positions. In Everett, Washington, over 100 certified nursing assistants (CNAs)—nearly one-quarter of the CNA staff—received layoff notices effective July 11, 2025.

Providence has cited increased operating costs, insurance payment delays, inflation, and expected cuts in federal reimbursements as primary reasons for the staffing changes. While the organization notes that registered nurse (RN) hiring remains steady, the reduction of CNA roles may place additional demands on existing clinical staff.

UC San Diego Health: Sudden Reductions

UC San Diego Health laid off approximately 230 employees in June, including nurses, aides, and social workers. Staff and the California Nurses Association have raised concerns about potential impacts on patient care and staff well-being. According to KPBS, the layoffs were reported to be communicated abruptly, prompting frustration among workers. Hospital leadership cited financial pressures and reductions in federal funding but maintains that nurse-to-patient ratios remain in compliance with California state requirements.

Cleveland Clinic Layoffs Target Support Roles, Clinical Hiring Continues

Cleveland Clinic, a global leader in academic medicine, announced the elimination of 114 jobs in 2025, affecting a mix of administrative, nonclinical support, selective clinical support, and IT positions. The organization emphasized that direct patient care roles are largely unaffected and that active hiring continues in high-demand clinical areas. Despite the layoffs, Cleveland Clinic remains focused on expanding healthcare access, particularly in the Mahoning Valley, and advancing education through innovative partnerships such as its quantum computing collaboration with Miami University.

System-Wide Layoffs at Providence and Beyond

In addition to Washington, Providence has announced layoffs across multiple states. In Oregon alone, over 130 positions were cut, affecting both clinical and administrative roles, as reported by the Portland Tribune. Other notable systems experiencing workforce reductions include:

For a broader overview, Xtalks 2025 has published a comprehensive roundup of recent hospital layoffs nationwide.

Potential Industry Pressures and Financial Strain

Hospitals report that a mix of economic and logistical challenges are influencing current workforce adjustments, including:

As a result, many facilities are reevaluating how care teams are staffed, sometimes consolidating roles or reducing support positions while maintaining—or even increasing—RN hiring in select departments.

What These Layoffs Could Mean for Nurses

For bedside nurses and direct care providers, these changes may lead to expanded responsibilities and increased patient loads, raising concerns about burnout and quality of care.

In response, some healthcare workers are seeking support through unions, legal counsel, or peer networks. Others are exploring opportunities for continuing education or transitioning into new roles within healthcare.

As the healthcare landscape continues to shift, the profession potentially faces growing pressure to balance cost-saving measures with the delivery of safe, effective care. Whether directly impacted or supporting colleagues through transition, it’s being reported that many nurses are calling for increased advocacy around staffing standards and workplace protections.

Continued engagement within professional networks, policy discussions, and workplace forums remains critical as the industry adapts to economic challenges and evolving care models.

Healthcare has a staffing problem. So why are hospitals cutting jobs?

You may have heard the story of the American Airlines olive. In the 1980s, Robert Crandall, then head of the company, calculated he could save the airline substantial money by removing just one olive from every salad served to passengers. He reasoned that customers wouldn’t notice the missing olive, let alone protest. He was right – to the tune of $40,000 a year, or about $100,000 in today’s dollars.

More than two years into the pandemic, many hospitals are confronting one of their worst financial years in decades, according to a report from Health Affairs. As hospital budgets begin to crack, many are channeling the spirit of the American Airlines olive by cutting back in ways they hope their communities won’t notice.

In this blog, we’ll look at the latest trends shaping hospital finances and discuss the low-profile actions health systems and hospitals are taking to trim expenses.

Labor shortages are driving higher costs

One of the main drivers of recent financial shortfalls has been the cost of finding workers. On average, labor expenses account for more than half of all operating expenses for hospitals. These include costs associated with recruiting and retaining staff, benefits, and incentives.

Even before the pandemic, healthcare had a staffing problem. Now, workers are leaving in droves due to burnout, retirement, and other reasons. To fill the void, hospitals are paying a premium for contract workers, including travel nurses.

But this expensive stopgap has caused hospitals’ labor costs to soar. In 2021, U.S. hospitals spent $7.30 million on contract labor, on average, compared to $4.61 million in 2020. The jump represents a 58% increase. This is based on an analysis of 3,164 U.S. hospitals with reported contract labor expenses in 2021.

Average contract labor expense, 2016 – 2021

Data is from the Definitive Healthcare HospitalView product. Data is based on 3,164 U.S. hospitals with reported contract labor expenses in 2021. Data is accurate as of November 2022.

Medical and surgical supply expenses inch upward

Along with high labor costs, supply shortages are squeezing hospital finances. Today, the FDA lists nearly 35 medical devices that are currently in short supply due to component scarcities, shipping delays, and demand increases. These shortages include a wide array of crucial supplies, from tracheostomy tubes to saline-flush syringes.

Hospitals often have to pay a premium for alternative products. According to our data, average medical and surgical supply costs for U.S. hospitals increased from $13.0 million in 2020 to $13.5 million in 2021. Medical and surgical supply costs account for more than half of total supply expenses.

Pharma supply costs jump 40% in five years

Hospital pharmacy costs in the U.S. have also grown substantially in recent years. In 2016, the average annual pharmaceutical supply cost was $12.28 million per hospital. In 2021, that number has grown to $17.23 million – a 40% increase.

Rising drug prices and the launch of new products at very high prices are driving dramatic growth in hospital pharmacy spend. In January alone, manufacturers raised the prices of 810 drugs by an average of 5.1%, according to an analysis by GoodRx.

Drug shortages also impact pharmacy spend. When hospitals can’t access drugs because of a shortage, they often turn to higher-priced substitutes. In addition, they use extra resources to lessen the impacts of drug shortages on patient care.

Today, there are more than 120 drugs on the FDA’s shortage list, many of which are crucial to keeping people alive, like oxytocin (which stops postpartum hemorrhages) and lidocaine (which helps prevent cardiac arrhythmia).

Hospital operating expenses increased 24% in the last five years

These factors combined are driving higher operating expenses for hospitals. In 2021, the average hospital operating expense was $207.12 million compared to $167.1 million in 2016 – a 24% jump over five years.

Hospitals in the northeast had the highest average total operating expenses at $347.32 million, while hospitals in the southwest had the lowest at $150.13 million. Below, you can get a closer look at the average operating expense by state.

Average hospital operating expense by U.S. state

Data is from the Definitive Healthcare HospitalView product. Data is sourced from the Medicare Cost Report and is based on 5,960 hospitals with reported total operating expense.

Hospitals’ dire finances are spurring layoffs among admins and execs

Many health systems and hospitals have had to make difficult decisions to cut expenses. Labor cuts may seem counterintuitive given the healthcare staffing shortage. But as hospitals endure financial blows, some are shrinking their administrative staff and restructuring or reducing their executive teams.

Decisions to slash administrative and leadership roles draw scant attention compared to decisions to shutter patient care sites or end service lines. Most people know how long it takes to travel to the nearest hospital or clinic. Few know the names of their hospital’s C-suite.

Furthermore, awareness around administrative waste is growing. Today, administrative spending accounts for between 15% and 30% of medical spending, according to research by Health Affairs. And at least half of that spending is likely ineffective or wasteful, meaning it doesn’t contribute to health outcomes.

Big names like Providence, Sanford Health, and Yale New Haven Health are some of the latest systems to trim down administrative or leadership positions. Yet, the publicity was nil.

Cost reduction efforts that close care sites or scale down services tend to, on the other hand, provoke pushback and criticism. For example, the recent closure of Atlanta Medical Center drew national attention as a severe blow to the Atlanta healthcare landscape.

While the implications of administrative and executive shakeups may be felt throughout a health system–these might range from halts or delays in strategic planning to employee disengagement–the disruption they cause to patients is less clear. What’s certain, though: hospitals will have a lot to weigh as they navigate a difficult year ahead. And more olives, as well as many other things big and small, could disappear.

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