Plunging U.S. Economy - "Descending into Trump's Period of Prosperity"
In a surprising twist, the US economy took a slight hit during the initial phase of President Trump’s tenure. Trump quickly pinned the blame on his predecessor, Joe Biden, calling for patience and assuring that an unprecedented economic boom was just around the corner.
Here's the skinny on what went down: According to the Bureau of Economic Analysis, the GDP dropped by a marginal 0.3% in the first quarter compared to Q4 of 2024, which had seen a rise of 2.4%. This turn of events came as a shock to economists who had anticipated a modest 0.3% growth.
Analysts, such as Bastian Hepperle of Hauck Aufhäuser Lampe Privatbank, aren't holding back their criticism. Hepperle points the finger at the unpredictable nature of the US government, implying that the zigzaggovernment course is keeping investments and consumer decisions on a leash. According to Hepperle, the increasing visibility of tariffs’ burden is leading the US economy toward a summer slowdown.
Stephan Bales of KfW Bank shares similar observations. Bales believes the GDP numbers only paint a partial picture of the US economy’s true health, hinting that a number of one-off effects, like inventory buildup in Q1, are likely to be short-lived. Bales also suggests that factors like consumer confidence, investment readiness, and the comprehensive tariffs implemented in April aren't fully reflected in the data yet. He forecasts that the braking effect of Trump’s economic policy will become more noticeable from mid-year.
Despite persistent inflation concerns, US consumers have shown surprising generosity in recent times by increasing their consumer spending by 0.7% in March compared to February. However, their optimism might be misplaced as Trump continues to impose tariffs on nearly all US trading partners. This protectionist policy, which temporarily spares some negotiations, is creating uncertainty in financial markets and the economy, potentially slowing down global trade and export-oriented economies, like that of Germany.
If you're scratching your head and wondering whether this trade war, masterminded by Trump, will pay off for the US, the International Monetary Fund has some surprising news. The IMF recently made significant downward revisions to its US economic growth projections for 2025 and 2026, lowering them to 1.8% and 1.7%, respectively. That’s 0.9 and 0.4 percentage points lower than the IMF’s January forecast when Trump was re-elected.
US Federal Reserve is closely monitoring Trump's trade policy and how it impacts the economy. The central bankers, under Chair Jerome Powell, have kept the key interest rate steady at 4.25-4.50% but have also hinted that they're ready to act if necessary.
The job market wasn't spared from the economic turbulence either. April saw fewer job creations than predicted by economists, with ADP reporting that only 62,000 new jobs were created in the private sector, compared to the predicted 115,000. Things aren’t looking much better for the retail sector, with consumer confidence somewhat waning and retail sales showing a downward trend.
In conclusion, the US economy is treading water, caught between inflation, trade wars, and a slew of tariffs. As the storm rages on, we can only wait to see what the future holds. Stay tuned for updates on how the situation unfolds.
- The Bureau of Economic Analysis reported a decrease in the US GDP by 0.3% in the first quarter of 2024 compared to Q4, which had a growth of 2.4%.
- Analysts like Bastian Hepperle of Hauck Aufhäuser Lampe Privatbank criticize the unpredictable nature of the US government, as they believe it is hindering investments and consumer decisions.
- Stephan Bales of KfW Bank observes that the GDP numbers only show a partial picture of the US economy’s health, and suggests additional factors like inventory buildup in Q1, consumer confidence, investment readiness, and comprehensive tariffs haven't been fully considered.
- The International Monetary Fund has lowered its US economic growth projections for 2025 and 2026, due in part to persistent trade wars, tariffs, and inflation concerns.
- The US Federal Reserve is closely monitoring how Trump's trade policy affects the economy, keeping key interest rates steady while preparing to act if necessary. The job market also isn't spared from the economic turbulence, as fewer job creations were reported in April compared to predictions.
