Not a good omen for the U.S. economy, inflation is moving in the wrong direction and Americans have become more frugal about their expenditure.
“We’re starting the year off on much softer footing,” Wells Fargo’s chief economist, Sam Bullard, said following a dismal Friday consumer pricing and expenditure analysis.
The most letdown has come from inflation’s comeback. The government said that prices jumped significantly in February for the third month running.
The Fed’s favored inflation gauge, the personal-consumption expenditures (PCE) index, has been caught around 2.5%. Other indicators reveal inflation approaching a 3%.
The key driver of the economy, consumer spending could potentially be stuttering. After the first drop in almost two years, household outlays barely showed a meager comeback last month.
Furthermore, cumulative spending in January and February was the smallest rise since the worst of the 2020 epidemic.
The economy seemed to be on far more solid basis just several months ago. Strong consumer spending, declining inflation, and corporate large plans in response to what they believed would be a business-friendly Trump White House reflected back on each other.
“That seems like a long time ago,” President Thomas Barkin of Richmond Federal Reserve remarked Thursday.
From then, what has changed? plenty.
Most famously, the president has proposed high tariffs and entangled the United States into its worst trade conflicts since the 1930s. From cars and lumber to clothes and foreign alcohol, these battles risk aggravating inflation on everything.
Among other things, the president terminated scores of government contracts and slashed tens of thousands of federal employment.
“One can argue the pros and cons of these policies over the medium term but, the pace of change seems to have created a sense of instability in the near term,” Barkin remarked.
Though they aren’t getting much attention, the White House claims pending tax cuts and deregulation would help companies and consumers.
“Tariffs and inflation have sucked out all the oxygen in the room,” Bullard remarked.
The turbulence in Washington has extended much beyond the city. Like to indicate a significant decline in the first quarter, gross domestic product, the official scorecard of the economy, shows a similar trend.
Current projections point to a 0.5% or less economic growth; some analysts think a negative reading is plausible. By contrast, GDP climbed a bubbly 2.8% in 2024.
Chief U.S. economist Scott Anderson of BMO Capital Markets stated the most recent economic statistics had a somewhat stagflationary feel. Higher inflation and slower growth define an economy marked by stagflation.
Though most economists are not projecting a recession, mind you, they are anticipating stormy times in the next few months as Wall Street DJIA SPX struggles with the breadth of the White House’s tariffs and how long they will stay.
Recent polls of business executives and consumers reveal a notable loss of confidence following the election. The tariffs cause Americans to expect more inflation; businesses are reluctant to recruit and invest until they know how much the new Washington regulations will cost them.
To be clear, Washington’s actions have nothing to do with every flaw in the first quarter’s economy. Still other forces were in action.
For example, very cold winter weather, severe wildfires in California, and a postholiday fall in consumer spending caused the economy to start slowly in January.
Still, all the turbulence in Washington is aggravating the concerns. Barkin said the fog lying over the economy will finally break up, but until then consumers and businesses could decide to sit on the sidelines.
