Slower Economic Growth Ahead?

Popular Economics Weekly

Second-Quarter GDP Growth Estimate Increased
“On July 7, the GDPNow model estimate for real GDP growth in the second quarter of 2026 is 1.4 percent, up from 1.2 percent on July 1.”

AtlantaFed

What is happening to U.S. economic growth in 2026? The Atlanta Federal Reserve is one of the few organizations brave enough to attempt to predict future growth in constantly updated forecasts. And the news is not good for most Americans.

The culprit for the volatility in GDP second quarter economic growth predictions by the Atlanta Fed’s GDPNow estimate that had dipped as low as 1.2 percent and is still a mere 1.4 percent (in the above GDP graph), is the large increase in our trade deficit.

And this was the gap that President Trump wanted to shrink with his new tariffs. It has worsened largely because Trump and his advisors don’t know what they are doing; i.e., haven’t taken the time to make the tariffs legal by negotiating with trade partners after doing the required research and then getting congressional approvals, rather than via his illegal executive orders.

The GDPNow model was predicting 3-4 percent Q2 GDP growth until last June as per the graph. But the trade gap has suddenly jumped 42.2% to $77.6 billion, the highest level since March 2025, said the Commerce Department's Bureau of Economic Analysis and Census Bureau.

The most hurt is being done to American workers, since the enlarged trade deficit mirrors the production that had shifted overseas. So many of the components that go into the surging AI build-out are now being imported--especially computers and computer chips—which means an increasing share of the buildout is benefiting foreign workers.

This is a main reason for the alarming drop in June job numbers to a mere 57,000 workers, most of them in healthcare. Some 755,000 workers dropped out of the labor force in June because “jobs are hard to get,” said the Conference Board’s latest consumer Confidence Survey.

What's more, job gains in May and April were revised down to a combined 277,000 from a previous 351,000 - 74,000 fewer than previously reported.

Trump’s Iran War disaster is another reason for the hiring slowdown because higher energy prices from the Middle East is elevating inflation. Wall Street is hoping the A.I. revolution will boost labor productivity to such an extent that it will tame inflation, but without creating many new jobs.

The trade gap jumped 42.2% to $77.6 billion, the highest level since March 2025.

The major culprit; capital goods imports soared $1.1 billion to a record high $128.0 billion that subtract from GDP growth, which calculates just what is produced domestically.

We could be producing more of those imports domestically. But that hasn’t happened so exports dropped 3.2% to $317.7 billion in the latest report.

The shrinking labor force will also shrink GDP growth since fewer workers plus higher inflation means less will be produced domestically because of the higher costs, unless A.I. delivers on its promises of higher productivity. And that will take years, experts have been saying.

All this means fewer Americans will benefit for some time. The International Monetary fund predicts prices won’t come back down until the end of 2027, and only if the Iran war ends.

The official scorecard of the U.S. economy was updated to show the economy grew at a 2.1% annual pace in the first three months of the year, faster than the previously reported 1.6%.

Is that good news? Maybe, but Q1 consumer spending was the weakest in four years.

There will be more robots, Claude, ChatGPT, Open AI, etc., etc. but a shrinking workforce pays less taxes to support public policies, social security, Medicare. And don’t forget the public debt, which is soaring.

Harlan Green © 2026

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

Retail Sales Slump

Financial FAQs

“Retail trade sales were virtually unchanged (±0.5 percent)* from November 2025, and up 2.1 percent (±0.5 percent) from last year. Nonstore retailers were up 5.3 percent (±1.4 percent) from last year, while food service and drinking places were up 4.7 percent (±1.8 percent) from December 2024.” Census Bureau

FREDretailsales

This FRED graph shows best what tariffs have done to consumer spending, which powers 70 percent of economic activity, let us not forget. Retail sales fizzled in December as I feared would happen in my November retail report, rising just 2.1 percent annually. And retail sales don’t take inflation into account, so consumers weren’t keeping up with the rising prices.

Sales had declined or were barely positive in six of 11 months through November 2025, I said then. So why wouldn’t consumers turn even more cautious with almost no new payroll jobs. The latest Labor Department JOLTS report showed that as many people were leaving jobs as were hired—so zero net new jobs were added to the workforce, in other words.

This means the economy is steadily shrinking for most Americans because of the disastrous and largely ineffectual tariff policies that have increased import taxes, therefore higher inflation, the opposite of Trump’s promise to bring down prices on ‘Day One”.

The FRED graph shows just how consumers timed their purchases with the tariffs. Sales had plunged in May when the April 2 retaliatory tariffs were announced on all 180 countries in the world, some mostly inhabited by birds. Then Trump’s TACO tactics kicked in postponing them for 60 days, then raising them again when countries refused to meet his deadline for deals.

Also, November was the last month consumers splurged for the holidays so annual sales dropped from 3.1 percent to just 2.1 percent in just one month, when annual retail sales usually increase from 3-6 percent in good times.

My guess is that the AI build out of new energy centers won’t help inflation for a long time, if ever, or create many jobs in the near future, So Trump is saying we must lower interest rates to boost some growth and keep consumers happy. But inflation may not behave since concentrating so much wealth in AI investment with little return to show for it in the near term, may raise inflation.

Or, what will consumers ultimately do if Trump can’t stop playing the tariff game in his attempt to twist arms to achieve his ultimate goal of dominating friends and neighbors rather than cooperating with them?

The Trumper bet is that this year will bring more consumer benefits with the Fed’s new Chairman in May wanting to push interest rates lower as well as the tax breaks in Repub’s Big Beautiful Tax Bill.

In Nobel economist Paul Krugman’s words, “So am I saying that the argument that AI justifies rate cuts is dishonest, that AI has become the last refuge of scoundrels? Why yes, I am.”

So what could go wrong?

Harlan Green © 2026

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

A Better Economy for Whom?

 Financial FAQs

“Real gross domestic product (GDP) increased at an annual rate of 4.4 percent in the third quarter of 2025 (July, August, and September), according to the updated estimate released by the U.S. Bureau of Economic Analysis. In the second quarter, real GDP increased 3.8 percent.” BEA.gov

FREDgdp

The U.S. economy is growing again. Why, when polls show that a majority of Americans are unhappy with the economy and their standard of living? Because this measure of growth doesn’t answer what every day Americans need.

The U.S. standard measure for overall economic health, Real Domestic Product (GDP), grew in the second and third quarter of 2025, despite the inflation surge from President Trump’s tariffs. In fact, rising inflation is probably boosting growth at the top for major corporations because higher prices usually mean higher profits for businesses, (but not consumers).

Q3 GDP growth increased in part because consumers could continue to spend. Spending was up 3.5 percent. This is despite the higher tariffs on almost all imports entering the U.S, which caused the GDP measure of overall inflation to rise 3.4 percent, which is too high.

GDP growth is soaring at the moment for a chosen few, in other words. But most Americans are unhappy with the high prices and inflation tied to tariffs. They no longer believe Trump’s fiction that exporters or Americans will eat the cost of the price hikes from the tariff taxes.

The Fed’s preferred inflation gauge, known as the Personal Consumption Expenditures (PCE) index, also rose to a yearly rate of 2.8% in November, said the Bureau of Economic Analysis. That was up from 2.7% in October with the 12-month rate of core inflation up to 2.8% in November from 2.7%.

So will consumers continue to spend as much going into the New Year? We already know that most consumers are in a very sour mood. The Conference Board’s latest Consumer Confidence survey headline said it best: Confidence collapsed to lowest point since 2014, surpassing pandemic depths.

“Confidence collapsed in January, as consumer concerns about both the present situation and expectations for the future deepened,” said Dana M Peterson, Chief Economist, The Conference Board. “All five components of the Index deteriorated, driving the overall Index to its lowest level since May 2014 (82.2)—surpassing its COVID-19 pandemic depths.”

That is alarming, needless to say. Year 2014 was when confidence was even lower than even the COVID-19 confidence deaths because it was during the Republican’s “no compromise” government shutdown that was meant to oppose President Obama’s agenda of improving ordinary American lives via such programs as Obamacare. It was for more than 30 days—what was then the longest shut down in history.

Is this a repeat performance should congress not agree on a new budget before the end of February?

Exports also helped to boost growth because they have been increasing as well. This might be because of higher labor productivity, i.e., fewer workers are producing more. Amazon has announced it is planning to lay off 30,000 corporate employees, for instance. AI is already replacing workers in industrial and transportation industries, hence the low hire rate being seen after last October’s government shut down. All eyes will be on the labor market in upcoming months.

With only 50,000 new payroll jobs in November, Americans are frustrated by the difficulty in finding jobs. Some also mentioned more costly healthcare and insurance as well in the Confidence Board survey.

And now the blatant lies of President Trump in his attempt to cover up the murders of American citizens by ICE in Minneapolis is sowing even more chaos. No country can continue to grow for long amid such uncertainty.

The high GDP growth numbers and record Wall Street stock indexes won’t convince most Americans that all is well when they see the opposite with their own eyes. That is not the way to run a country, as I’ve been saying.

Harlan Green © 2026

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

What is Worrying Consumers?

 Financial FAQs

 “Consumer confidence tumbled in November to its second lowest level since April after moving sideways for several months,” said Dana M Peterson, Chief Economist, The Conference Board. “All five components of the overall index flagged or remained weak.”

Conference Board

Why are consumers worrying so much? Maybe they don’t like government shutdowns? Or, maybe it’s because higher prices and the tariffs are hurting small businesses that depend on imported goods? Or, there are fewer available jobs. Actually, it’s all of the above per the Conference Board’s Consumer Confidence Survey.

“Consumers’ write-in responses pertaining to factors affecting the economy continued to be led by references to prices and inflation, tariffs and trade, and politics, with increased mentions of the federal government shutdown.”

It’s also becoming obvious that consumers don’t like bully behavior, such as Republicans ramming through the continuing budget resolution without Democrats’ input.

Republicans were in fact attempting to take down Obamacare (ACA) once again by not including the subsidies in the continuing resolution that made it available for middle and low-income folk, I said last week.

Retail sales data finally released for September showed consumers were still shopping and dining out, but not as much.

So what will happen now? This was all before the shutdown. My guesstimate with anecdotal evidence from the likes of Walmart, Target, et. al., is that the more affluent consumers that own homes and stocks will come storming out of the gates after the shutdown and maybe party through the holidays. Government workers will be receiving extra paydays, for instance—i.e., weeks of backpay.

Doug McMillon, Walmart’s outgoing chief executive, cited by MarketWatch, said on the chain’s earnings call that middle-and-upper-income households drove growth in the U.S. during the third quarter. He also said that “lower-income families have been under additional pressure of late.”

And the financial markets have been rallying as it looks like the Fed will cut rates once again in December. Consumers will rally as well as they race to borrow and purchase during the holidays. That’s because polls say they expect inflation to surge over the next year when things will become more expensive.

And Trump has grown wilier with his tariff pronouncements, not touting their benefits so loudly, for instance, which was alarming consumers, while finally admitting that tariffs have been raising prices. His MAGA followers are suffering the most. He must have finally looked at his poor poll numbers that are even lower than during his first term.

The other unspoken shoe to drop that affects consumers is the shrinking job market. ADP payrolls reports that just +42,000 private payrolls were added in October. Trade, Transportation, Education and Healthcare added the most jobs. But -51,000 jobs were lost in other sectors such as Information and Information and business services.

“Private employers added jobs in October for the first time since July, but hiring was modest relative to what we reported earlier this year. Meanwhile, pay growth has been largely flat for more than a year, indicating that shifts in supply and demand are balanced,” said Dr. Nela Richardson, Chief Economist

It’s pretty obvious that we are living in uncertain times, and the old Republican playbook of tax cuts combined with DOGE and Project 25 slashing of government benefits isn’t yet hurting the 10 percent of consumers that have assets, but that leaves 90 percent of Americans still living paycheck to paycheck.

What will happen to them?

Harlan Green © 2025

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

U.S. Economy Is Freezing!

 Popular Economics Weekly

“…while the economy is growing thanks to AI spending, it’s a K-shaped expansion: People who were already affluent are becoming more so, but the less well-off are under severe pressure. For example, there are clear signs that middle-to-low income consumers are struggling: car loan and credit card delinquencies are rising, and grocers report that shoppers are buying cheaper varieties of food. At the same time, the affluent are spending freely: the top 10% of the income distribution now accounts for nearly half of all consumer spending.” Paul Krugman

PBS.org

This was the wrong season for President Trump’s Republicans to freeze Democrats out of the just passed continuing resolution or demolish the East Wing. We already have a record fall freeze hitting the Midwest and southern states.

Americans already feeling the freeze is also a good way to describe the Democrats landslide victories in the November elections. The record government shutdown put the U.S. economy on pause, but in fact much of the damage was already done, says Nobel Laureat Paul Krugman, just as Trump seemed oblivious to the timing of the damage being done to the White House,.

Republicans had been losing in the popularity polls this year because they chose to ignore the signs. So they believed that flying blind by keeping the federal government closed without official economic data on employment and inflation was the better option than knowing the truth.

But there are other data to fill the government void in data collecting that affect how consumers behave. The ADP, for instance, a private sector payment provider said private-sector employers shed an average of 11,250 jobs a week in the four weeks ending Oct. 25.

This hit the “middle-to-low income” consumers particularly hard that Krugman is talking about. What about inflation?

Ordinary grocery prices are climbing, forcing consumers to shop for “cheaper varieties of food.” Grocery prices have risen 18.2 percent since January 2022, making a $100 grocery bill approximately $118 today, per CBS News.

And President Trump is flailing in his attempt to mask the damage his tariff war is causing. Overall consumer inflation is stuck at 3 percent in large part because of the tariffs, so he wants to offer $2,000 rebates to consumers while the Fed is cutting interest rates. This would cost more than the import taxes he has already collected, enlarging the federal debt that has ballooned from his Big Beautiful Bill tax cuts.

And his proposed cuts to legal immigration from the longer term, historical average of one million to 7500 annually, will continue to shrink the workforce, even the number of H-1B work visas for highly qualified workers that are badly needed in the tech sector.

All of this will continue to damage economic growth at a time when worldwide economic growth is being affected by the chaos Trump has generated in tearing up existing foreign trade agreements.

No economy can tolerate such uncertain weather over the longer term. Hence investment decisions remain frozen while consumers find shelter for the coming economic winter. How severe will it be?

Harlan Green © 2025

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

This Inflation Isn't Temporary

Popular Economics Weekly

The Producer Price Index for final demand rose 0.9 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in June and moved up 0.4 percent in May. BLS.gov

 

FREDppi

The Trump administration wants Americans to believe the current inflationary surge is temporary. Why? Because it needs the Fed to lower interest rates to keep economic growth from stalling because of the tariffs. And lowering interest rates in what is still a fully-employed economy is inflationary.

It’s the kind of reverse logic that has characterized so much of the MAGA crowd that wants to believe conspiracies (Epstein?) rather than economic realities.

The Producer Price Index of wholesale goods just out is another unwelcome fact that inflation isn’t temporary because of the tariffs. The tariffs paid by American importers at ports of entry are already showing up in the prices of raw materials producers must pay that will ultimately be passed on to American consumers and businesses.

The PPI is showing July wholesale prices (dark red line) have risen much faster than retail prices (light red line) in the above FRED graph—3.3% vs. 2.7% in a year.

Coffee prices are already up 15%, for instance. Could that have to do with the 50% tariff Trump has levied on Brazil, a major coffee grower, because he doesn’t like its socialist government?

So an unfavorable PPI is another measure of inflation the Trump administration will want to ‘cook’ if their choice for a new head of the Bureau of Labor Statistics is confirmed by the Senate.

 It prices the raw materials and services that go into the retail CPI Index that measures the final consumption of finished products and services. That’s no surprise because material input costs have been rising since April 2 and the announcement of the tariff wars, which belies Trump’s lies that the countries exporting to us will bear the cost of those import taxes for the great privilege of selling to US, yet are ultimately paid by Americans!

All eyes are now on what Fed Chair Powell will say at the Kansas Fed’s Jackson Hole conference this week. Will the 12 Fed Governors that vote at the FOMC meetings decide once again that there is little likelihood of an interest rate cut in September?

They may have to, because the biggest rise in wholesale prices was in the service sector that powers almost two-thirds of consumer activities (leisure, travel, dining out, transportation, and construction).

The index for final demand services moved up 1.1 percent in July, the largest advance since rising 1.3 percent in March 2022. It showed importers are also increasing their profit margins and so passing on the increased costs to consumers and businesses.

Over half of the broad-based July increase is attributable to margins for final demand trade services, which 

And consumers are beginning to notice, according to the University of Michigan’s consumer sentiment survey.

“Consumer sentiment fell back about 5% in August, declining for the first time in four months. This deterioration largely stems from rising worries about inflation. Buying conditions for durables plunged 14%, its lowest reading in a year, on the basis of high prices,” reports survey Director Joanne Hsu.

Though it hasn’t done much damage to retail sales just yet. Retail sales rose 0.5% last month following a nearly 1% increase in June, reports the Census Bureau.

Automobile sales rose for the second month in a row, said MarketWatch’s Jeffry Bartash. Car buyers have been buying vehicles for the past few months to once again avoid anticipated price increases in the coming months as tariffs take full effect.

So the damage is already being done by Donald Trump’s tariffs. Even grocery prices are soaring that depend on what is produced domestically. Now why would grocery prices also be increasing that aren’t taxed by tariffs? Could it be that there are fewer farm workers to harvest the crops this year?? The ICE folks could answer that question!

Harlan Green © 2025

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

 

Second Quarter Growth No Big Deal

 Financial FAQs

“Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2025 (April, May, and June), according to the advance estimate released by the U.S. Bureau of Economic Analysis. In the first quarter, real GDP decreased 0.5 percent.” BEA.gov

BEA.gov

The big jump in second quarter economic growth wasn’t a surprise. Consumers continued to shop but bought fewer imported goods because Trump's tariff wars were already raising prices. Imports are a subtraction in the GDP equation.

It might be a one time jump because consumers are saving more and buying less these days, as I’ve been saying, while waiting to see how much damage the Trump tax cuts and higher tariffs might wreak on the U.S. economy, especially to those it will harm the most.

The two-month GDP average was a 1.3% growth rate. The U.S. economy expanded at a 2.8% rate in 2024 and 2.9% in 2023 under President Biden, which was in large part because of the New Deal legislation that pumped $billions into economic growth and caused higher inflation.

The Fed then raised their interest rates to bring inflation back down to its present mid-2% range, and Republicans took over the congress. The result was Trump initiated his tariff wars and passage of the big beautiful big tax bill that will increase the federal debt by some $4 trillion.

But because at least some of the additional federal debt must be paid for to preserve the no longer great faith and credit of our economy, Trump has raised tariff rates to 15-20 percent, which means raising taxes on U.S. consumers and businesses.

And as any economist will tell you, taxes slow economic growth, regardless of what Trump and his cabinet cronies say. And our economy is slowing. The so-called final sales of consumers and businesses increased just 1.2 % in Q2, and there is no indication that it might pick up as the tariff agreements (i.e., taxes) are finalized.

Inflation has declined because of less spending. Consumers spending as measured by the personal consumption expenditures (PCE) price index in the Q2 GDP report increased just 2.1 percent, compared with an increase of 3.7 percent. Excluding food and energy prices, the PCE price index increased 2.5 percent, compared with an increase of 3.5 percent because consumers bought ahead of the price increases due to the April 2 tariff announcements.

What about those Federal Reserve interest rate cuts that Trump wants? Fed Chair Powell said at his latest press conference after the July FOMC meet that its twin mandates of price stability and maximum growth are still in balance, so there’s no reason to lower interest rates at this time.

The unemployment rate remains stuck at 4.1-4.2 percent because the mandates are in balance. Powell said the Fed would act to lower interest rates sooner—i.e., ease credit conditions--if the unemployment rate were to increase substantially.

The Trump administration’s agenda paints a sordid picture in following a very similar trajectory of the GW Bush administration—with its wars on terror (like Trump’s tariff wars), huge tax cuts for the wealthiest and less regulation (like Trump’s big beautiful bill) fueling what became the Great Recession.

Trump’s tariffs won’t help the very people in the red states that elected him but raise their prices. His cuts to social services harm those in red states in the most need. His DOGE cuts are not only endangering air travel, but disaster relief when the worst storms are also happening in mainly red state territories.

So, its not even the blue states that Trump wants most to harm, but his own MAGA supporters that will suffer the most. It’s what bullies do, prey on the weakest and most vulnerable, especially immigrants and minorities that are least able to protect themselves.

Harlan Green © 2025

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

Consumers Aren't Buying It

 Popular Economics Weekly

Photo: Emma Da Silva/Getty Images

MarketWatch

“Total U.S. consumer credit growth slowed to a $5.1 billion gain in May, down from a $16.9 billion rise in the prior month, the Federal Reserve said Tuesday.

That translates to a 1.2% annual rate in May, down from a 4% rise in the prior month.” Greg Robb, MarketWatch

President Trump waited for stocks to rally before announcing his latest tariff broadsides on world markets, such as the 50 percent tariff on Brazilian imports. But the result is consumers are shopping less and less. So Trump shouldn’t be paying attention just to the financial markets if he wants to know what might happen over the rest of his term.

Retail sales fell 0.9% in May, the biggest drop in two years. Car sales spiked earlier this year as consumers sought to avoid higher prices from planned tariffs. But sales have slowed sharply since April, said MarketWatch.

The labor market is also slowing. Initial unemployment claims, an early indicator of its direction, have been increasing. The number of people receiving unemployment benefits increased 10,000 to a seasonally adjusted 1.965 million during the week ending June 28, the highest level since November 2021.

Consumer spending drives most economic growth (70%), so if they falter economic growth will slow. And stagnant growth is the component of a possible stag-flation that will result, just as it did in the 1970s with the oil shortages.

We now must wait for the other shoe to drop, which is the effect of the tariff taxes on inflation, which will surely increase later this year, given the supply shortages to follow.

Everyone now knows that TACO Trump is using the shock and awe tactics of so-called reciprocal tariffs, which are blatantly illegal per the Foreign Trade Court ruling now on appeal, to get more concessions from trading partners.

Trump’s problem is that neither consumers nor businesses like uncertainty, yet this is the only way Trump has ever known how to negotiate. His long history of lawsuits and bankruptcies have been the result. And once again he leaves it to the courts to sort out the messes he is now creating for all Americans.

Will it be worth it to those that elected Trump, and will be the most affected by their incompetence?

Harlan Green © 2025

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

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

FREDretailsales

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

Consumers Not Very Confident

 Financial FAQs

“Consumer confidence improved in May after five consecutive months of decline,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “The rebound was already visible before the May 12 US-China trade deal but gained momentum afterwards.”

Conference Board

The rebound in the Conference Board’s Consumer Confidence Index after its five-month plunge reflects how important China is in providing consumer products, and world trade. It also says consumers will have a very bumpy ride in trying to anticipate what lies ahead.

Why not? Trump has made it clear that the China pause in tariff negotiations is only temporary and that some form of higher import taxes on their products is coming. Trump’s ‘shock and awe’ negotiation tactics will eventually slow foreign trade and encourage higher inflation; just not when it will happen.

So what should consumers and investors do? Economic activity will fluctuate as well—buy the lows (i.e., discounts) and hold onto savings when prices jump. It’s what we all did during past stagflationary times.

Yes, it’s further confirmation that stagflation is on the way with more wild market activity as the public and investors attempt to anticipate what Trump will do next. This is probably why survey consumers still believe a recession could happen.

The Conference Board’s Present Situation Index—based on consumers’ assessment of current business and labor market conditions—rose 4.8 points to 135.9. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—surged 17.4 points to 72.8, but remained below the threshold of 80, which typically signals a recession ahead.

The above graph is telling us that confidence is down to the level that last prevailed in 2020 during the COVID-19 pandemic. What was happening then? Almost no foreign trade because supply chains had been shut down from the pandemic and took years to restore.

President Trump is unfortunately causing the same supply disruptions as happened during the pandemic with his shock and awe tactics. Pandemic shutdowns were the major cause of the soaring inflation at the time (Not Biden’s New Deal legislation).

And it’s happening again. California’s Long Beach and San Pedro ports handle most west coast imports and have reported a 45 percent decline in activity while importers wait to learn what Trump may do next.

It’s the unfortunate consequence of One-man rule. Trump is deciding what the tariff rules are, not Congress. Republicans in this case have given him the power, even though he has been exhibiting increasingly erratic behavior.

Are Republicans choosing to ignore what the public may already be seeing? Is there already a coverup, an attempt to hide his declining mental acuity, as Republicans have accused President Biden’s White House of doing?

Let’s hope it doesn’t lead to another recession.

Harlan Green © 2025

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

Economic Growth Slowing...Because?

 Popular Economics Weekly

“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

AtlantaFed

“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.

BEA.gov

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

Will Consumers Stay in the Game?

 The Mortgage Corner

“In February, consumer confidence registered the largest monthly decline since August 2021, This is the third consecutive month on month decline, bringing the Index to the bottom of the range that has prevailed since 2022.” Stephanie Guichard, Conference Board Senior Economist

Conference Board

The last Mortgage Corner column asked what 2025 economic growth will depend on, and whether consumers will keep spending in the New Year. If they can’t continue their spending ways, growth will stall in this New Year. And as has been widely reported, the latest consumer confidence surveys show a weakening in their resolve.

It’s beginning to worry the financial markets and that affects our overall wealth and health, which is why I cover consumer spending.

The Conference Board’s consumer confidence survey caused some of the worry. Bloomberg News headlined that fact with the title, “Recession fear is back” recently:

“Perceptions of present and future financial situations worsened and the share of respondents expecting a recession in the next year rose to a nine-month high.

That pessimism has Americans cutting back their spending: According to a new study from Wells Fargo, more than half of consumers are delaying major life plans due to uncertainty over the economy and the consequences of Trump’s tariff threats. Of those, about a third said they were putting off buying a home while one in six have postponed education plans—and one in eight have pushed back retirement.” —Jordan Parker Erb

Such fear was the reason the DOW fell almost 800 points last Friday, although the markets might have a very tentative recovery this week. But there’s another elephant in the room besides their declining confidence that is causing more worries—the ongoing budget debate.

Republicans want badly to extend Trump’s tax cuts from his first term, which could add another $4 trillion to the federal debt, per the latest estimates, which is threatening the U.S. Treasury’s bond rating and causing investors to become leery about investing in US Treasury securities. They will demand higher rates to compensate for the added risk.

There is also another elephant—inflation fears. No one can agree on where public expectations are. Republicans want to believe Trump can conquer inflation, as he promised, but Democrats don’t, to no one’s surprise. Inflation has been rising, which will keep interest rates higher than they should be at this time in the business cycle. It is in its late stage because of a weakening job market. Just 143,000 jobs were created in January, though the unemployment rate dropped to 4.0 percent from 4.1 percent.

The housing market is also a good indicator of future economic health, and it is mired in a mini-recession because 30-year fixed mortgage rates are still close to 7 percent (6.8% at present). Existing home sales are down to a 4.08 million annual rate. New-home sales are doing better because builders are offering to buy down their mortgage rates, although tend to be more expensive, hence shutting out most first-time homebuyers.

"Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve," said NAR Chief Economist Lawrence Yun. "When combined with elevated home prices, housing affordability remains a major challenge."

Affordability in all things will remain the question this year for consumers, unless prices show some sign of easing, but that will depend on lower interest rates, which will depend on lower inflation.

Am I sounding too pessimistic? It’s because we don’t know what the Trump administration will do. Markets don’t like confusion or chaos, and it won’t help to reduce the budget deficit, or inflation.

Harlan Green © 2025

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

Are Consumers In Danger?

 The Mortgage Corner

Total consumer credit rose $40.8 billion in December, after a $5.4 billion decline in the prior month, the Federal Reserve said last Friday. In percentage terms, it is the biggest gain since June 2022.

FREDconsumercredit

Will consumers lose their mojo? They shopped until they dropped during the holidays, which is why retail sales were up 3.9 percent in December as well. To do this consumers were spending more than they were earning. The question now is when will consumers run out of savings, and stop shopping? That will in fact determine economic growth in the New Year.

Revolving credit, typically credit-card debt, made up most of the increase, rising at a 20.2% annual rate. That follows a 12.1% drop in the prior month. Nonrevolving credit, mainly auto and student loans, rose at a 5.8% rate after a 2.7% rise in the prior month.

That’s the fine line the Fed’s Chair Powell is attempting to walk at their semi-annual congressional update this week. He didn’t say outright that the tariffs that President Trump has announced will cause inflation to spike so they can’t drop interest rates any lower, in answering questions.

"We are in a pretty good place," Powell told the Senate committee - citing tariffs, immigration, fiscal and regulatory policy as the key variables the Fed will "try to make sense of".

Therefore we won’t actually know the future until we see that happens when the new tariffs on imports kick in and those countries retaliate with their own tariffs on U.S. exports.

So January will be another story as consumers must begin to spend less to replenish their savings. A sign of their hurt is that the delinquency rate has risen, with some 3.5% of card balances past due by 30 or more days and 1.8% of accounts delinquent. Both figures are more than double the post-pandemic lows recorded in 2021, said Bloomberg.

Another hint on future consumer behavior is how small businesses are feeling. The NFIB Small Business Optimism Index fell by 2.3 points in January to 102.8. This is the third consecutive month above the 51-year average of 98. The Uncertainty Index rose 14 points to 100 – the third highest recorded reading – after two months of decline.

“Overall, small business owners remain optimistic regarding future business conditions, but uncertainty is on the rise,” said NFIB Chief Economist Bill Dunkelberg. “Hiring challenges continue to frustrate Main Street owners as they struggle to find qualified workers to fill their many open positions. Meanwhile, fewer plan capital investments as they prepare for the months ahead.”

Speaking of hiring challenges, Goldman Sachs put out a graph that shows just how important ‘unauthorized’ workers are to the U.S. economy. They make up approximately half of the jobs native-born Americans won’t take.

GoldmanSachs/MarketWatch

“The key risk is probably not a scenario in which annual deportations reach into the millions, but one where an immigration crackdown creates a climate where employers are afraid to employ unauthorized immigrants or unauthorized immigrants are afraid to go to work, potentially leading many to stay out of the workforce or even to leave the U.S. on their own,” said Goldman Sachs of their survey.

And we have just learned that inflation may be on the rise again, with the retail Consumer Price Index above 3 percent. The financial markets are reacting because of the news. It isn’t a good time to be imposing tariffs, in other words.

Harlan Green © 2025

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