Economic updates are now causing distress instead of relief
S pinning a Tale: 2025's Economic Rollercoaster
It's been a year since America had a distinctly eerie economic atmosphere, a so-called "vibecession" where things were relatively rosy on paper but the zeitgeist fell flat. Fast forward to today, and it appears the economic data and public sentiment are both playing somber melodies.
This year's vibe check:
- American consumers, the powerhouse that lead us through the CoVID-19 recession, are calling it quits. Sentiment is reaching its lowest ebb since 2022 when inflation surpassed 9% on an annual basis and the S&P 500 plummeted over 19%.
- Construction of new homes is taking a nosedive.
- Consumer spending, the primary driver of U.S. GDP, has slipped for the first time in two years. One real-time prediction points to a contraction of 2.4% in Q1. Airlines and major retailers like Target and Walmart are alerting us that consumers are tightening their wallets.
- To make matters worse, financial markets are quaking due to the White House's erratic tariff policies which are looming like a sledgehammer, ready to shatter the economy. The Wall Street's "Fear and Greed Index" is screaming "extreme fear" due to these shifts in policy.
In essence: the mighty economy that Trump inherited from his predecessor is wavering under the weight of the tariff agenda, plunging businesses, consumers, and investors into a spiral of uncertainty.
Unsurprisingly, Trump is harboring a confidence about the positive data points while casting blame on his predecessor for the negatives or remaining undisturbed.
Mortgage rates are inching down from their recent peaks, and gas prices are averaging $3 a gallon. All together now, yay! But though the surface appears hopeful, signs of caution are flashing red when we take a closer look.
Mortgage rates have been steadily plummeting for six weeks because they follow the 10-year Treasury yield, which is a popular safe-haven asset in times of trouble in the stock market--true enough, the demand for Treasuries is booming.
Gas prices have dropped slightly since Trump took office, but the decline in energy prices has got nothing to do with his "drill, baby, drill" mantra--oil production hasn't risen noticeably since he stepped into the Oval Office. Here's the secret: the lower oil prices can be credited to a supply-demand imbalance on a global scale, particularly diminished demand from China.
And yes, inflation is gradually subsiding, according to the Consumer Price Index report in February, but we need to tread carefully here. We don't want a roaring campfire; we want a cozy one manageable enough for s'mores. Right now, we are simmering at an annualized rate of 2.8%, slightly higher than the Fed's target of 2%.
Finally, the Fed has been remarkably successful in bringing inflation down steadily, without causing a recession, thanks in large part to our robust labor market. Our most recent monthly jobs report indicates that the labor market is still in fine shape, but it doesn't capture the recent layoffs at federal agencies, a consequence of Elon Musk's dismantling efficiencies.
So where do we stand? Essentially, the country's economic situation in 2025 is a mosaic of tariff policies, inflation, and consumer sentiment that lays the groundwork for a moderate growth trajectory, but with an atmosphere of unease.
As economist David Kelly aptly put it, the economy is tenacious and has the resilience to absorb a good bumping, but it despises uncertainty. Currently, businesses are acting like deer caught in the headlights--a perilous place to be. The ball is in Trump's court; retreating on tariffs would be a wise move for the sake of the economy.
- The average consumer sentiment, having reached its lowest point since 2022 when inflation surpassed 9% and the S&P 500 plummeted over 19%, is currently playing a somber melody, hinting at a recession in the business sector.
- Despite a slight decrease in gas prices and mortgage rates, Isidore reports that these positive data points are somewhat overshadowed by the concern of an impending recession, due to factors such as the White House's erratic tariff policies and diminished consumer sentiment.
- In light of the economic rollercoaster of 2025, with the persistent uncertainty posed by tariff policies, inflation, and consumer sentiment, economist David Kelly's words seem particularly pertinent: the economy may have the resilience to absorb a good bumping, but it despises uncertainty, potentially putting businesses in a precarious position.
