The nearly five-year economic growth of the United States is losing momentum.
Cracks are forming in the foundation of the economy: layoffs are increasing, hiring is decreasing, consumer confidence is deteriorating, and inflation is accelerating. Signs of a possible recession ahead?
All of this could be happening anyway under any other administration. However, the uncertainty triggered by President Donald Trump’s economic policy is certainly exacerbating these problems.
Tariffs are fueling concerns about rising inflation at a time when prices stubbornly refuse to fall.
Trump’s crackdown on immigration threatens key industries, including agriculture, construction, and healthcare, which have struggled to hire. And drastic cuts to federal employees and government aid could harm the most vulnerable Americans, who are more dependent on government programs and also more sensitive to inflation.
Trump himself acknowledged in his joint address to Congress last week and later in the Oval Office on Friday (7) that tariffs would cause “a small disruption.” In an interview with Fox News on Sunday (9), Trump refused to rule out a recession, saying his economic plan could be painful for some in the beginning.
“I hate to predict things like that,” Trump said. “There’s a transition period because what we’re doing is very big.”
The statement was enough to sink stock markets on Monday (10).
Recent economic data has shown more than just a small disruption, as the president said.
Consumer spending unexpectedly fell in January, according to the Commerce Department. Shoppers pulled back much more than economists expected: spending dropped 0.2% for the month. Adjusted for inflation, it fell 0.5%. These are the largest monthly declines since February 2021.
Prices are rising again, increasing 0.5% from December — the fastest pace since August 2023 — resulting in an annual inflation rate of 3% for the 12 months ending in January, according to the latest Consumer Price Index data.
Consumer confidence in February recorded its largest monthly decline since August 2021 and fell more at the beginning of the year than at any time since 2009, according to the Conference Board Consumer Confidence Index.
Meanwhile, employers announced more layoffs in any February since the Great Recession and the highest number in any month since the pandemic, according to outplacement firm Challenger, Gray & Christmas.
A forecast from the Federal Reserve on gross domestic product (GDP) suggests that the U.S. economy may already be contracting this quarter. The model, which bases its forecast on economic data, shows that U.S. GDP could fall at an annualized adjusted rate of just under 3% this quarter. The U.S. economy has not had a single quarter of economic contraction since 2022.
The good news is that the chief economist of the United States, Federal Reserve Chairman Jerome Powell, is not worried yet. He noted that uncertainty is increasing, certainly, but that does not necessarily mean that consumer spending, which drives two-thirds of the U.S. economy, will simply dry up. Despite historically low consumer sentiment in 2022, when inflation hit a 40-year high, consumers continued to spend.
Source: CNN