Why a Recession Now?

 Financial FAQs

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.4 percent on April 9, up from -2.8 percent on April 3.

AtlantaFed

The Atlanta Federal Reserve’s GDPNow graph of estimated first quarter economic growth is still the best representation of where US economic growth is headed, I said last week. It has plunged from +3 percent where it was during the Biden administration, to a range from -2 to -3 percent of GDP contraction since March 4, 2025.

Why? Trump’s tariff wars. Here’s the latest headline from MarketWatch on the automobile tariffs, for instance. GM, Ford and Stellantis face extra $5,000 cost for each car made in America, thanks to Trump’s tariff on parts

The Big Three automakers also are dealing with an average tariff cost of nearly $9,000 for each finished vehicle that’s imported, according to a new study by the Center for Automotive Research.

Its key findings were:

• · Increased cost of $107.7 billion to all U.S. Automakers.
• · Increased cost of $41.9 billion to the D3 Automakers.
• · Impact to D3 production volume of 6.8 million vehicles.

Trump has delegated himself emergency powers that really belong to congress to enact his tariffs, when there is no emergency. President Biden’s tariffs were already doing the job of protecting American workers and industries. The manufacturing sector had added 700,000 jobs and were building new factories because of the CHIPs, Infrastructure, and Inflation Reduction Acts during Biden’s administration.

This President is really driving economic growth off a cliff not because of a huge persecution complex (it’s an act), but to enrich himself and his Oligarchs. He maintains the taxes collected from the tariffs will offset more tax cuts, when he has done no research (or chosen to ignore what is available) on the effects of a worldwide tariff war.

Trump’s wrecking ball mentality is even alarming the Oligarchs. Ray Dalio, Founder and Chief Investment Officer of Bridgewater Associates, the world’s largest hedge fund, said recently on CNBC, “We have a breakdown of the monetary order. Such times are very much like the 1930s…I’ve studied history, and this repeats over and over again.”

What did he mean? The US bond and currency markets were collapsing. US Treasury Bond yields soared 0.5 percent in a week, and the US Dollar’s value in relation to other currencies plunged. Foreign investors were losing faith in our economy at a time when Republicans want to add approximately $5.8 trillion to our national debt with their tax cuts, and record debt holdings by foreign investors.

Those foreign investors determine how much that additional debt will cost, or they may not want to buy some of that debt in the form of more US Treasury bonds or Mortgage-backed securities. Former Treasury Secretary Lawrence Summers has said it’s making US look like a third world country.

That’s enough bad news to scare anybody, as even small businesses are now worried. “The implementation of new policy priorities has heightened the level of uncertainty among small business owners over the past few months.” said NFIB Chief Economist Bill Dunkelberg.  “Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.”

Surveys show consumers are now beginning to save rather than spend, also a sign of a possible recession. Their spending behavior has reversed from the past four years under President Biden when we were the world’s fastest growing economy.

MarketWatch cites Primerica, for instance, a firm specializing in life insurance and securities, who conducted a survey in late December of people with household incomes ranging from $30,000 to $130,000, or roughly the middle 60% of Americans.

“Despite increases in income, about 73% of middle-income Americans said they are cutting back on nonessential purchases due to the high cost of living, and 84% are eating at home more frequently.”

That is why Republicans and DOGE are on such a cost-cutting spree. But Elon Musk appeared to dramatically lower DOGE’s savings goal, projecting $150 billion for the year—far short of his earlier trillion-dollar figure at a recent cabinet meeting, said Fortune Magazine. However, questions remain about the savings claimed by the team, with critics pointing to inflated numbers, retracted claims, and a growing list of controversial cuts.

This is why we are hearing horror stories about the cutbacks coming from social security and Medicaid services, with maybe more to come. We are no longer the economy to be envied, if Republicans in their greed destroy the faith and credit of the U.S. government.

Harlan Green © 2025

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

US Economy Already In Recession

 Popular Economics Weekly

FREDgdp

First quarter 2023 economic growth was not good, after all the conjecture over where US growth is headed. The U.S. economy grew at just a 1.1 percent annual rate in the first three months of this year, as declining business investment offset strong consumer spending causing the slower growth.

Consumer spending kept US economic growth barely positive. So the Fed’s rate hikes are making a difference. But it was businesses cutting back on spending and stocking inventories, not consumers that slowed Q1 growth.

Consumer spending is the main engine of U.S. growth and grew 3.7 percent, the government said Thursday. It was the biggest increase in almost two years. Businesses are now aggravating the inflation problem by not meeting consumers’ needs, reducing investments and production at a time when consumers are still consuming, thus keeping prices from declining more quickly.

What is the Fed to do with one more rate hike scheduled? They are harming future growth six month to a year ahead, while consumers want to spend because they are still fully employed.

One economist believes we are already in a rolling recession, with some sectors still growing while others are shrinking. Consumers still love leisure activities like dining out and travel, for instance, but are buying fewer things like cars and other durable goods.

Businesses like manufacturing see this as recessionary and so have cut back on investments, and hence future growth.

“The strong and healthy job market is one of the reasons we’re not seeing every sector declining simultaneously as we do in a classical recession,” said Sung Won Suhn, an economist at Loyola Marymount University. “This is the bedrock of the economy that’s enabled a more moderate rolling recession,” who was cited in the Washington Post.

We can therefore say the Fed has already induced a recession, but a mild one if the Fed will now pause in its rate hikes. They should pause because the simple fact is regional banks are still in trouble, such as First Republic that has seen another multi-billion dollar withdrawal of deposits that sent its stock plunging 50 percent recently.

So the Fed maintains it is now the job market that is causing stubborn inflation because Americans are still fully employed!

But is it wise for the Fed to now want to put workers out of work at a time when banks are faltering, there is a major European war, and there is still a scramble for available resources?

Harlan Green © 2023

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

Is It a Recession or Recovery?

 Popular Economics Weekly

The recent 1,000 + point surge of the DOW following news of declining inflation in the latest CPI report may have been prompted by the Leuthold Group’s noted market analyst Jim Paulsen in a recent CNBC interview, when he said that “we may by heading for a new recovery rather than a recession.”

This is while the Conference Board’s Index of Leading Economic Indicators (LEI), a well-regarded prognosticator of future growth, is forecasting recession next year, as is Goldman Sachs and some economists.

The U.S. economy is in limbo at the moment, suspended and not sure of a direction. Half of it is running too hot (e.g., employment) and half too cold (e.g., housing), which means the U.S. economy could go either way in 2023—be in a recession or recovery.

“The US LEI fell for an eighth consecutive month, suggesting the economy is possibly in a recession,” said Ataman Ozyildirim, Senior Director, Economics, at The Conference Board. “The downturn in the LEI reflects consumers’ worsening outlook amid high inflation and rising interest rates, as well as declining prospects for housing construction and manufacturing. The Conference Board forecasts real GDP growth will be 1.8 percent year-over-year in 2022, and a recession is likely to start around yearend and last through mid-2023.”

Conference Board

That would make sense with the slowdown in manufacturing and the fact that housing busts have foretold recessions in the past. But it hasn’t stopped shoppers, which show up in service sector statistics. Retail sales that account for some half of consumer spending jumped a huge 1.3 percent in October, 7.6 percent YoY, with much of the boost due to leisure activities (e.g., dining out and travel).

And the Atlanta Federal Reserve’s GPNow estimate of future growth says fourth quarter growth could be as high as 4.2 percent! Its GPNow estimate proved to be almost right with its third quarter estimate of 2.9 percent (it was actually 2.6 percent) so its Q4 GDP prediction could also be in the ballpark.

Why the jump in GDP? Because the Atlanta Fed’s model shows consumer spending and exports still surging, while consumer expectations and personal incomes have remained high. So why wouldn’t consumers continue to spend in a fully-employed economy?

AtlantaGPNow

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2022 is 4.2 percent on November 17, down from 4.4 percent on November 16,” said the Atlanta Fed. “After this morning’s housing starts report from the US Census Bureau, the nowcast of fourth quarter real residential investment growth decreased from -7.6 percent to -11.7 percent.”

Manufacturing activity may be slowing but services are booming as reported in the latest retail sales report. Consumers are keeping up with inflation, in other words, and the holidays are an opportunity to celebrate their world returning to normal. Dining out at restaurants increased 1.3 percent in October, for instance, twice the current inflation rate.

Financial markets rallied again last Tuesday because the Producer Price Index (PPI) for wholesale goods and services continued its decline. Wholesale prices in October rose just 0.2 percent month-month and core inflation without food, energy and trade services declined from 5.6 to 5.4 percent YoY.

Some pundits have characterized this as a goldilocks economy that is neither too hot nor too cold. But half of our economy is still too hot (i.e., employment and consumer spending) and half too cold (manufacturing, housing), as I said.

So our economy is in limbo because of such uncertainty—poised between a recession or an economic recovery. But I believe not for much longer. Our economy is already on a wartime footing because of the $trillions needed to conquer the pandemic and modernize our economy. This should soon conquer the uncertainty and generate a lasting recovery.

Harlan Green © 2022

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