Saturday, June 28, 2025

Anxious Consumers Shop Less

 Popular Economics Weekly

Disposable personal income (DPI)—personal income less personal current taxes—decreased $125.0 billion (0.6 percent) and personal consumption expenditures (PCE) decreased $29.3 billion (0.1 percent).”

We are seeing one of the classic signs of a looming recession—consumers are spending less and saving more, and they power 70 percent of economic activity.

The personal consumption expenditures (PCE) for May from the Bureau of Economic Activity (BEA) showed the personal savings rate has risen to 4.8 percent (black line in graph), while personal consumption expenditures decreased -0.1%, Personal savings had been increasing since early 2025. No surprise, since that is when Trump’s tariff plans were first announced.

Why are they spending less? One of the reasons cited by the consumer sentiment surveys is too much future uncertainty. Not so surprising with inflation worries still high, and the on again, off again tariff announcements that probably mean even higher prices.

The PEW Centers most recent survey said the public again sees inflation as one of the top problems facing the nation, with 62 percent saying inflation is a very big problem for the country – only slightly down from the 65 percent who said this last year (2024).

The Conference Board Consumer Confidence Index® deteriorated by 5.4 points in June, falling to 93.0 (1985=100) from 98.4 in May. “Consumer confidence weakened in June, erasing almost half of May’s sharp gains,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “The decline was broad-based across components, with consumers’ assessments of the present situation and their expectations for the future both contributing to the deterioration.”

The University of Michigan’s Consumer sentiment survey surged 16% from May in its first increase in six months but remains well below the post-election bounce seen in December 2024 when last year’s economic growth was 3 percent, the highest in the developed world, and jobs were still plentiful.

“Despite June’s gains, however, sentiment remains about 18% below December 2024, right after the election; consumer views are still broadly consistent with an economic slowdown and an increase in inflation to come,” said Survey Director Joanne Hsu.

From the same month one year ago, the PCE price index for May increased 2.3 percent. Excluding food and energy, the PCE price index increased 2.7 percent from one year ago. It’s at least a sign of stagflation if the spending slowdown continues, since the PCE report also shows signs of higher inflation that the Fed is worried about.

No wonder consumers are more worried. Bloomberg research reveals AI could replace 53 percent of the white-collar market research analyst tasks and 67 percent of sales representative tasks, while managerial roles face only 9 to 21% automation risk.

The World Economic Forum's 2025 Future of Jobs Report reveals that 41 percent of employers worldwide intend to reduce their workforce in the next five years due to AI automation. Industries like technology, finance, and consulting are highlighted as particularly vulnerable.

It really looks like Republicans are trying as hard as possible to start a recession. They are shrinking the workforce by deporting undocumented immigrants who work with their hands and thus would be needed to fill some of the 400,000 vacant manufacturing jobs.

And passing Trump’s Big Beautiful Bill will create an unsustainable debt load, keeping interest rates high.

So though Biden suffered through higher inflation, it was because of the $trillions in New Deal legislation that caused 3.2 percent GDP growth during his term. The Trump administration has managed just -0.5 GDP growth in Trump's first quarter as President.

This is what happens when Republican tax cuts transfer even more wealth to the Oligarchs from middle and working class Americans.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, June 26, 2025

First Quarter Growth Revised Lower

 Financial FAQs

“Real gross domestic product (GDP) decreased at an annual rate of -0.5 percent in the first quarter of 2025 (January, February, and March), according to the third estimate released by the U.S. Bureau of Economic Analysis. In the fourth quarter of 2024, real GDP increased 2.4 percent.” BEA.GOV


We won’t know yet if we can stay out of a recession because first quarter GDP was revised downward in its final (third) estimate, but Americans have been stocking up on cheaper imports before the tariffs kick in, just in case.

Real GDP was revised down 0.3 percentage point from the second estimate (-0.2%), primarily because of downward revisions to consumer spending and exports. This was before the April 2 tariffs and retaliatory tariffs hit consumers.

But the final (third) revision of Q1 GDP showed inflation already rising because of the rush to buy before April 2. The price index for gross domestic purchases increased 3.4 percent in the first quarter, a revised +0.1 percentage point from the previous estimate. The personal consumption expenditures (PCE) price index increased 3.7 percent, and the PCE price index excluding food and energy increased 3.5 percent, both +0.1 percentage point higher than previously estimated.

So, what are consumers and businesses to do while waiting for the final outcome of the tariff wars? (If there will be a grand finale, that is.) Trump is using the tariffs to not only pay for the huge deficit that his Big Beautiful Tax bill will create, but as a way to bully other countries to do all manner of things, like get NATO to up its military spending, and China to import more U.S. exports.

The general consensus is that tariffs will ultimately end up being about 10 percent for most countries (30 percent for Chinese imports), up from 4 percent in recent history. The financial markets are rallying again because of Trump’s TACO (Trump Always Chickens Out) negotiating techniques—suddenly raising retaliatory tariffs, then cancelling them. It can’t prevent higher prices, since so much of what we consume is imported.

Things might look brighter for a while, like in the second quarter just coming to a close in June. The Atlanta Fed’s GDPNow estimate of second quarter growth is still holding at 3.4 percent because of continued investment in AI and other high-tech innovations in its most recent Nowcast. But we won’t see the first estimate of second quarter GDP growth until July 30.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 is 3.4 percent on June 18, down from 3.5 percent on June 17. After this morning’s housing starts report from the US Census Bureau, the nowcast of second-quarter real residential fixed investment growth decreased from -2.8 percent to -4.4 percent.

Higher fixed investment is good for growth, of course, yet we are also seeing increases in weekly initial jobless claims that come close to Great Recession and COVID-19 pandemic numbers. The number of jobless workers collecting longer term unemployment benefits rose by 37,000 to 1.97 million, marking the highest level since November 2021.

That’s because much of the high-tech and AI investment will be replacing White-collar workers. We now must wait until July 30 before Q2 growth numbers come out from the Bureau of Economic Analysis. That’s a long time to wait these days, since so much can happen.

Stocks and bonds are rallying because corporate profits are higher, as well as the hope that TACO Trump won’t level any more retaliatory tariffs. The Foreign Trade Court has said the retaliatory tariffs aren’t legal. So maybe that’s what the markets are betting on—no more tariff increases. Most analysts are predicting the new 10 percent tariff level will shave approximately 1.5 percent from GDP growth this year, however.

Harlan Green © 2025

Follow Harlan on Twitter: https://twittter.com/HarlanGreen

Tuesday, June 24, 2025

Fed Rate Cuts Coming Soon?

 The Mortgage Corner

“Existing-home sales rose in May, according to the National Association of REALTORS®. Sales elevated in the Northeast, Midwest and South, but retreated in the West. Year-over-year, sales progressed in the Northeast and Midwest but contracted in the South and West.” NAR


President Trump is now putting on a full court press to convince the Fed Governors to cut interest rates. There are some good reasons to lower interest rates, including the fact that home sales are at levels that last prevailed during the 2008-09 Great Recession (see above graph).

But his “Big Beautiful Bill” will add an additional $3 trillion to the federal debt that means almost $1 billion in annual interest payments. Trump has said he wants rates to be cut as much as one point (-1.0%) from the current 4.25% Fed Funds overnight rate that adjusts the Prime Rate controlling credit card and auto loan payments.

Any rate cuts would give a huge boost to financial markets as well that have been held back by the high borrowing costs for both consumers and businesses.

Fed President Powell speaks to congress this week and Trump wants congressional Republicans to grill him on why he hasn’t lowered interest rates further.

This is because Powell said at his recent press conference, “For the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”

Two of the Fed Governors appointed by President Trump are already leaning in his direction. Chris Waller and Michelle Bowman said after the bank stood pat last week that they would be open to a rate cut at the July 29-30 meeting, according to MarketWatch’s Jeffry Bartash.

And we mustn’t forget housing sales have been flat since January 2023 when the Fed began to raise their short-term rates. That’s why the National Association of Realtors have also been lobbying for lower interest rates.

"The relatively subdued sales are largely due to persistently high mortgage rates. Lower interest rates will attract more buyers and sellers to the housing market," said NAR Chief Economist Lawrence Yun. "Increasing participation in the housing market will increase the mobility of the workforce and drive economic growth. If mortgage rates decrease in the second half of this year, expect home sales across the country to increase due to strong income growth, healthy inventory, and a record-high number of jobs."

There’s also another reason why interest rates may fall further in July; fears that tariff wars may induce a recession. The Federal Reserve’s release of its minutes from the last FOMC meeting didn’t have much to say about the continuing tariff wars, because nothing has yet been negotiated—just some retaliatory pauses and a written understanding with the UK.

That puts the Fed in a very difficult position. We now know why President Trump has attempted to disguise the fact that it is an import tax. The Court of International Trade has ruled that Trump’s retaliatory tariffs (i.e., import taxes) are illegal.

Hence Chairman Powell’s concern that a recession may be on the horizon was mentioned in last week’s FOMC minutes. “The staff viewed the possibility that the economy would enter a recession to be almost as likely as the baseline forecast.”

We know from past history (i.e., Trump’s first term) that higher tariffs cause higher inflation, which Trump denies will happen again (because it was a campaign promise), and Powell, et.al., have worked hard to get inflation down to its current level.

We also now have reports that imports have declined almost 40 percent in the west coast, which handle most Chinese supplies. Long Beach and Los Angeles posted month-over-month drops of 31.6 percent and 29.9%, while Tacoma and Seattle fell over 40%.

So, there is a good case to be made that interest rates should be coming down, for both good and bad reasons. It does look like Republicans’ “Big Beautiful Bill” will pass, regardless of the consequences. And who doesn’t like lower interest rates?

But Republicans are playing with fire by endangering the “full faith and credit” of the U.S. in wanting to finance it with another $3 trillion in debt.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Saturday, June 21, 2025

U.S. Already in Recession?

 Financial FAQs

The Conference Board Leading Economic Index® (LEI) for the US ticked down by 0.1% in May 2025 to 99.0 (2016=100), after declining by 1.4% in April (revised downward from –1.0% originally reported). The LEI has fallen by 2.7% in the six-month period ending May 2025, a much faster rate of decline than the 1.4% contraction over the previous six months.

Are we already in a recession? The Fed doesn’t think so, but the Conference Board’s Index of Leading Economic Indicators conjectures we will be in a recession soon, if not already. The LEI is a tricky read because it looks at indicators spanning longer periods, hence its name.

The Conference Board’s index of Leading Economic Indicators is now signaling that a recession might have begun in May 2025, though Fed Chair Jerome Powell and the Fed Governors don’t think so. Powell said after last Wednesday’s FOMC meeting that interest rates will stay on hold for now.

“The economy is in solid shape, so the labor market is not crying out for a rate cut,” said Powell. (Therefore, the Fed has time to “learn” more about the economy.)

However, Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board, said “With the substantial negatively revised drop in April and the further downtick in May, the six-month growth rate of the Index has become more negative, triggering the recession signal,”

The Conference Board creates several surveys, including the Consumer Confidence Index, so it puts the most weight on consumer expectations for business conditions, which has been dropping sharply in its surveys.

And the ISM’s New Order Index as well as private housing building permits have continued to decline as well, thanks to the Fed’s intransigence on reducing interest rates further.

So the LEI is hedging its bets just as the Fed is doing by taking a longer wait and see. “The Conference Board does not anticipate recession, but we do expect a significant slowdown in economic growth in 2025 compared to 2024, with real GDP growing at 1.6% this year and persistent tariff effects potentially leading to further deceleration in 2026.

Federal Reserve President Chris Waller, one of the Fed Governors, is a dissenter: “I don’t think [the inflation impact of Trump’s tariffs] is going to be that big,” Waller said in an interview on CNBC. “I think we have room to bring [rates] down in July (the next FOMC meeting)”

Almost everyone in congress and President Trump also want lower rates because the new fiscal budget’s annual interest expense could be close to $1 trillion annually on approximately $38 trillion in debt.

This is unsustainable, so everyone is waiting to see if the Republican congress succeeds in driving the U.S. economy over the cliff with their new fiscal budget. Then what good will any amount of import taxes (tariffs) do to fill the debt void?

It’s becoming evident that Republicans will do anything to get their tax cuts, and Democrats don’t seem to be shouting loud enough to win at least two Republican House members to their side that don’t want to bankrupt the U. S. economy.

That’s all they require to block the looming budget disaster. This is while it looks like Trump’s tariffs will ultimately equal those in 1930. And we know the 1930 Smoot-Hawley tariffs that raised prices on imports was one of the reasons for the Great Depression.

Harlan Green © 2025

Follow Harlan on Twitter: https://twitter.com/HarlanGreen

Wednesday, June 18, 2025

Tariffs Trump Consumer Spending

 Financial FAQs

“Advance estimates of U.S. retail and food services sales for May 2025, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $715.4 billion, down 0.9 percent (±0.5 percent) from the previous month, and up 3.3 percent (±0.5 percent) from May 2024.” U.S. Census Bureau

Retail sales have declined in four out of five months since January, a sign that consumers don’t like trade wars; i.e., not knowing what will happen to prices and whether shelves will soon be empty if  President Trump can’t finalize any of the trade deals that he says are almost done.

There’s even more that affects consumer spending and economic growth—the new federal budget still in negotiation and immigration crackdown that will become evident in coming months.

Consumers and businesses are complaining about the uncertainties, which is why President Trump keeps postponing the deadlines while pushing for better “deals”. He can keep promising, though even the UK tariff tax hasn’t been finalized.

The Senate could shave as much as $1 trillion from Medicaid spending in the Senate version of the bill not yet out of committees, according to reports.

And it will increase the federal debt by $2.8 trillion, which will drive up interest rates because bond investors will demand higher returns for the added risk of default. Higher interest rates will then slow growth, while rising import prices from snarled supply chains caught up in the tariff war will cause higher inflation, which is the other half of the stagnation + inflation (stagflation) equation that will result.

Motor vehicles and parts as well as construction sales declined in the retail sales report, as did healthcare and gardening supply sales. Consumers have also dined out less over the past two months, another sign that consumers are becoming more cautious in their spending habits.

All the Trump administration seems to be able to do at present is round up undocumented immigrants, which should cause even more serious damage to economic growth. Immigrants also like to shop, and now there are fewer of them working or shopping due to the growing arrests of undocumented immigrants.

According to estimates on its website from the Center for Migration Studies of New York (CMS) and other groups, as many as 8.3 million undocumented immigrants work in the US economy, or 5.2 percent of the workforce. They work in construction (1.5 million), restaurants (1 million), agriculture and farms (320,000), landscaping (300,000), and food processing and manufacturing (200,000), among other occupations.

That’s a lot of undocumented immigrants in the workforce, and the Trump administration wants to deport one million of them per year. As the numbers of working immigrants decline so will the amounts they produce, which also effects the family members who are American citizens.

And guess where many of them work—in red states with lots of agriculture for which immigrants are needed. That, and the draconian cuts to the health services will hurt MAGA-dominated red states the most that have fewer public services.

This is Economics 101, folks. Without more workers our economy can’t grow. And without paying for our debts, interest rates will continue to rise. And with tariffs at historically high levels, as high as they were in 1930, the cost of almost everything will rise. It’s not bringing down inflation on ‘Day 1’ or any other day of this administration.

Harlan Green © 2025

Follow Harlan on Twitter: https://twitter.com/HarlanGreen

Monday, June 16, 2025

Calkfornia Can't Be Bullied

 Popular Economics Weekly

Governor Gavin Newsom today announced that California has officially overtaken Japan to become the world’s fourth-largest economy, according to newly released data from the International Monetary Fund (IMF) and the U.S. Bureau of Economic Analysis (BEA). April, 2025

image

LATimes

The Trump administration’s efforts to bully California in the past week by sending in contingents of the California Coast Guard and active-duty Marines to ‘guard’ its ICE agents that are bent on rounding up as many undocumented workers in California as possible, is almost comical.

Would they try the same with Japan or Germany, who have economies that are basically the same size? Of course not, though Trump wants to pick on smaller Canada, and maybe Denmark’s Greenland.

Of the 850,000 farmworkers in California that are providing close to one-quarter of the agricultural produce of America, some 400,000 are seasonal workers (i.e., with permits) or undocumented, which is why President Trump has told ICE workers to stop rounding them up, for fear Americans will no longer have enough fresh (or canned) produce to eat.

It’s a sign of the Trump administration’s tremendous ignorance that their efforts to deport as many of the 11 million undocumented U.S. workers is looking worse than ridiculous, it is enraging the populous of those cities that depend on immigrants to work in the service and hospitality industries, as well as feed them.

If Trump also thinks he can humble California by attacking the University of California system (UC) as he is doing to Harvard, he is also mistaken.

The system's ten campuses presently have a combined student body of 299,407 students, 26,100 faculty members, 192,400 staff members, over 2.5 million living alumni, and $41.6 billion in annual operating revenues.

And as an alumnus, I can attest it teaches or promotes no particular ideology or political view, just the scientific and social science truths that are verified and tested empirically, not by rumor or conspiracy theories.

Trump and the Republican Party have succeeded in bullying the smaller red states they have dominated since the 1970s, making them the poorest states in income (many have no minimum wage), health care, social services and education.

Republican led red states are mostly dependent on the excess tax revenues passed on to them from blue states.

“In 2023, the federal government collected around $4.67 trillion from states and their residents through taxes on individuals and businesses and redistributed about $4.56 trillion back to states and residents through programs like Social Security, Medicaid, Medicare, food stamps, and education grants, says USA Facts.

Virginia alone depended on $79 billion in transfer payments in 2023 to balance its budget from states like California and New York, who contributed $78B and $89B in 2023 to the federal kitty.

So why have Republicans gone to all this trouble that will do very little harm to the likes of UC and California’s economy? Their red states can’t do without the income coming from blue states.

Oh, their leaders want more tax cuts, which will continue to increase federal debt. Americans will find out soon enough that’s not how to stay in business.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, June 12, 2025

Republicans Have Never Paid Their Bills

 Financial FAQs

The new law will reduce federal revenues by significant amounts, even after allowing for the impact on economic growth. It will make the distribution of after-tax income more unequal. If it is not financed with concurrent spending cuts or other tax increases, TCJA (Tax Cuts and Jobs Act) will raise federal debt and impose burdens on future generations. If it is financed with spending cuts or other tax increases, TCJA will, under the most plausible scenarios, end up making most households worse off than if it had not been enacted.” Brookings


President Trump is justifying his trade war that could wreck the U.S. and maybe world economies because he wants to renew his 2018 Tax Cuts and Jobs Act (TCJA) that could raise the federal debt $2.8 trillion over the next 10 years.

If Republicans would ever pay their bills, rather than continue to lobby for tax cuts, we wouldn’t be in this situation. But they haven’t since Ronald Reagan and now are led by a complete phony who sues those that expose his lies making complete fools of those who support him.

Why are we in a huge financial mess today with a record federal budget deficit and falling value of the dollar President Trump is using to justify an illegal tariff war that is tearing apart the world’s financial order and alienating our closest allies?

Trump’s Republicans are twisting themselves into pretzels to justify the tariff wars Trump is waging on the whole world—all 180 countries—that could lead to product shortages last experienced during the COVID-19 pandemic.

Yet rather than destroy the U.S. and other world economies with unjustified DOGE job cuts and tariffs, if Trump Republicans were serious about reducing the federal debt, they should raise taxes on those that have benefited most from decades of tax cuts enacted by Republican administrations

It doesn’t have to be this way. The Clinton/Gore government downsizing of the 1990s created four years of budget surpluses, because they negotiated with congress to make the cuts that were in congressionally mandated programs.

“Unlike the current effort, the cutting didn’t start until they had gone through a six-month study process and developed a blueprint of how to best reinvent the federal government,” said a recent Newsweek article on the subject. “Government agencies were brought into the process to determine the best ways that efficiencies could be realized. In fact, the effort was led by some 250 federal employees that remained on their agency payrolls.”

The federal workforce was reduced by 440,000 employees between 1993 and 2000, or about 17 percent of the total. The cuts made the government the smallest it had been since the Eisenhower administration, according to the Newsweek report.

The St, Louis Fed (FRED) graph of federal debt as a percentage of GDP shows precisely when Republicans began to drastically cut taxes in 1980 under President Reagan—from a 75 percent maximum personal tax rate to below 40 percent, whereas the 90 percent corporate tax rate and 92 percent maximum personal tax rate of the Eisenhower era paid for the “new hires, new equipment, and product research which are deductible from taxable earnings.”

In other words, the higher tax rates made corporations use their profits to finance U.S. growth. Whereas today the tax cuts have mostly financed corporate stock buybacks.

How times have changed! President Eisenhower asked wouldn’t it be better to spend a majority of earnings on expanding the U.S. economy rather than to horde it?

Not any more, because Republicans don’t want to pay their bills rather than provide social services and environmental protection that would benefit all Americans. That’s their history since President Reagan declared that “government was the problem” and immediately fired the federal air traffic controllers who were striking for higher pay and better working conditions.

Will Americans realize and restore Republicans’ theft from American taxpayers via the tax cuts since 1980? It’s estimated some $1 trillion in wealth has been transferred from American workers to the owners of wealth since then that is causing the record income inequality we have today.

Make no mistake, if enough Americans don’t realize what fools they’ve been to support a President who says we’ve just won World War I, and appointed a Navy Secretary who held a ceremony honoring the 1941 Japanese attack on Pearl Harbor on June 6 instead of December 6, it will result in the wholesale destruction of our democracy and loss of the “good faith and credit” of the U.S. Government.

Harlan Green © 2025

Follow Harlan on Twitter: https://twitter.com/HarlanGreen