“The U.S. government is currently under the control of a deeply ignorant, vengeful megalomaniac with zero impulse control. And it’s not just Elon Musk: Trump shares the same characteristics.” Nobel Laureate Paul Krugman
“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -1.5 percent on February 28, down from +2.3 percent on February 19.” Atlanta Federal Reserve
Watch out below, as economic growth looks to contract (-1.5 percent) in the first quarter of 2025! Trump’s abrupt announcement of tariffs on Mexico, Canada, and China, as well as Elon Musk’s indiscriminate slashing of payrolls and elimination of whole government agencies created a shock to economic growth that we have not seen in a long time.
How do we know? For starters, Trump’s tariff announcement caused a sudden plunge in predictions by Fed officials and economists of first quarter 2025 economic growth. The Atlanta Fed’s GDPNow estimate (graph above) dropped almost 4 percentage points from earlier predictions in part because of Trump’s just announced tariffs; that is a record plunge, I might add. They will be levied on Mexico, Canada, and China, which will mean higher import prices ahead for consumers when Trump had promised to lower inflation from ‘Day 1’.
And the just released U.S. Personal Consumption Expenditure (PCE) read on inflation for January (see below graph) is another reason first quarter economic growth is worsening. Consumer spending declined for the first time in two years, and consumer expenditures make up the largest component of Gross Domestic Product growth.
I said consumer spending should weaken after the holiday shopping splurge in an earlier report, Are Consumers In Danger?, and it’s happened. U.S. first-quarter consumer spending growth was just 1.6% annualized—the weakest since the second quarter of 2023. Much of the spending slowdown was due to the horrendous Los Angeles wildfires, unseasonably cold winter temperatures, and consumers replenishing their depleted savings. The personal savings rate jumped from 3.8 percent to 4.6 percent (black line in above graph).
Some good may come out of the PCE report because its inflation index declined from 2.6 to 2.5 percent, which increases the likelihood that the Fed may cut interest rates further, especially if the labor market continues to soften.
Elon Musk’s mass layoffs and complete elimination of whole federal agencies without plan or regard for the consequences will have a disastrous effect on the job market as well.
Well-regarded Chief Economist Torsten Slok of Apollo Global Management estimates there could be 300,000 federal job cuts, but when private-sector contractors that work for them are included, a total of one million jobs could be at risk, in a Barron’s article by Randall Forsythe.
And this is just the beginning. The uncertainty and craziness of Trump and Musk’s actions are already showing up in the alarming drop in consumer confidence surveys as well.
There is a better way to trim government excesses. Even Musk has acknowledged that “What @DOGE is doing is similar to Clinton/Gore Dem policies of the 1990s.”
Not really. President Clinton’s “Reinventing Government” initiative headed by VP Gore was only initiated after an initial year of planning and cooperation with congress that resulted in four years of budget surpluses.
This is a far different approach than Trump/Musk’s blatantly illegal attempts to usurp the power of congress and the constitution, which can only lead to more court fights and budget deficits.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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