pLoss for the US economy has been significantly cooled in a few months. After outperforming his international peers last year, analysts warn that Donald Trump’s volatile approach is stricken by the world’s biggest economy, warning lights flash on economic indicator dashboards.
Fear of the US recession this year is growing amid a sharp decline in business and consumer confidence as the president threatens punitive import duties on both US allies and enemies.
Most economists believe they can avoid a recession defined as a two-quarter consecutive quarter that reduces the recession. However, it is clear that storm clouds were gathering around the first 100 days before the president at the White House.
GDP
The growth of US gross domestic product (GDP) has surpassed its international peers in recent years. Especially since the Community Pandemic, the Biden administration has been helped by putting billions of dollars into the economy through the Inflation Reduction Act. However, the former president didn’t get much credibility as voters felt they had been narrowed down from the era of high inflation caused by the pandemic in Ukraine and the Russian war.
This week, GDPNOW of the Atlanta Federal Reserve, which measures GDP economic growth in real time, suggested that the US economy will sign an annual contract at 2% in the first quarter. However, this widely followed indicator is volatile and is heavily affected by the US trade deficit, which rose sharply in January.
Trade Balance
The US commodity trade gap skyrocketed to $153.3 billion in January. This was driven by an increase in record imports between $36.2 billion and $329.5 billion as US companies rushed to bring cargo into the country to avoid potential tariffs.
US Gold Imports
A key factor in the import rise was inbound shipping of “finished metal shapes” including gold bars. This trend is attributed to traders rushing to move ahead of potential US tariffs. Expansion of a country’s GDP usually usually weighs the country’s GDP, as imports are deducted from measurements. However, gold purchased while sitting in a safe is excluded as it is not consumed or used in production.
This means that the Atlanta Fed is likely overestimating its first quarter GDP hit. Still, there are other signs that the US economy is cooling down.
inflation
Trump had promised to “cut prices from day one” and “cut energy costs in half within 12 months of taking office.”
Official figures show the annual headline rate at 2.8%, measured by the consumer price index, after an unexpected rise to 3% in January rose from 2.9% in December to 3%. Energy costs are down 0.2% per year.
The Organization for Economic Co-operation and Development (OECD) said Monday there was a risk that Trump’s trade war could shaking. It increased its 2025 US inflation forecast to 2.8% from a previous estimate of 2.1% in December.
employment
The US job market has been booming in recent years, with unemployment falling to 3.5% in early 2023, the lowest level since the first lunar landing year in 1969. This is driven by the rapid growth of the number of jobs added to the economy.
Wage growth has also been strengthened, exceeding inflation since early 2023, helping households restructure some of their purchasing capabilities during the recent rise in cost of living.
stock
The US stock market has provided the power to record highs in recent years. Tech Stocks and “Magnificent Seven” – Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia and Tesla were especially supported by investors who led the accusations and bet on the growth of artificial intelligence.
The Biden administration oversaw a strong stock market performance that was supported by the economic recovery from the pandemic. But Wall Street has skyrocketed amidst investors’ expectations of tax cuts that could increase corporate profits after winning Trump’s election in November. Markets have rattled in Trump’s first 100 days amid his volatile approach to the economy and concerns over the threat that tariffs are colliding with growth and hitting inflation.
USD
The US dollar has risen sharply against other major currencies, reflecting economic and investor concerns that Trump’s policies could blow out inflation. Tariffs that boost the prices of imports and increase inflation could force the US Federal Reserve to prevent interest rate reductions.
The Fed cut its benchmark rate by 1 percentage point last year as inflation recedes. High inflation rates can limit the ability to further reduce interest rates.
A dramatic slowdown in the economy can force central banks to take action to reduce borrowing costs. This has pulled back the dollar in recent weeks.
Washington has long maintained a “strong dollar” policy with the view that it will help keep inflation low for a long time. The dollar is also used as the best currency for global trade and supports the financial system. U.S. Treasury Secretary Scott Bescent said this approach will not change. But Trump argues that cheap exports for overseas buyers will help US manufacturing if the dollar is weak.
Entering price for manufactured products
Business research shows that input costs for US manufacturers have increased significantly, providing early warning signs about growth and inflation. The Supply Management Institute (ISM) Manufacturing Purchase Manager Index (PMI) price meter shows raw material costs have risen sharply earlier this year, with the first sign of supplier difficulties and the first sign of discussion about customs duties payments. Increased input costs could closely reduce US manufacturing output and could be passed on to consumers in the form of high priced finished products.
Consumer spending
U.S. consumer spending fell unexpectedly in January for the first time in almost two years, down 0.2%, the biggest drop in almost four years. Cold temperatures in some parts of the country, as well as wildfires in California, could have been hit by spending. However, some analysts warn that consumer sentiment has knocked amid concerns about the strength of the economy.
