February 27, 2025 - 5:00pm
On Thursday, the US Department of Commerce released its latest revision to its GDP estimate for the final quarter of 2024. Although backward-looking, it nonetheless provides a snapshot of the economy’s current health and its direction of travel, and this one does little to dismiss growing fears of a coming slowdown.
While economic growth eased somewhat from earlier quarters, it remained robust. However, it was propped up by both private and government consumption, whereas exports and investment fell. With recent reports suggesting that consumer confidence is dropping, it’s likely that portion of the economy may therefore already be weakening. Indeed, there’s some reason to believe that a lot of the buying of the last few months has been done by businesses and consumers looking to lock in prices before any tariffs begin to bite.
Consumers looking to beat price rises actually seem to be ahead of the curve. This is because inflation, which had resumed rising late last year, rose even more than originally thought. This, of course, happened before the change of administration. Add in the daily headlines about tariffs since Donald Trump took office, and it’s no surprise that consumer surveys reveal Americans expect prices to take off in the months ahead.
Nor will Government consumption pick up the slack left by private shoppers. Although it’s not clear just how much money Elon Musk’s DOGE is actually cutting from federal expenditure, what is clear is that the job market for Government employees has cooled sharply, with many recent hires having lost their jobs. Of course, the rationale for the slash-and-burn approach is that the administration will then be able to return the savings to the public, whether via DOGE dividends or, as seems more likely, by making the 2017 tax cuts permanent.
Yet it’s not clear if the tax cuts, if they happen, will have the same impact they did back then. Assuming Congress manages to pass a budget in the next couple of weeks, it may maintain the existing tax cuts — which is to say, keep the status quo. Without new juice, it’s not clear this tax package will have anything like the stimulative effect the last one did.
That leaves exports and investment to keep the economy afloat. One can imagine a world in which Trump’s tariff threats induce other countries to buy more American products, as the Europeans have hinted they’ll do with gas. Similarly US companies may now be inclined to go local, as Apple has done with its recent $500 billion investment in US production.
It’s possible. But, judging from the experience of his trade war with China during his first administration, governments have a way of pledging to buy stuff then quietly not doing it. In Trump’s first term, the Chinese didn’t carry through on their pledges to buy more US goods and more recently, Canada’s promise to beef up border security turned out to be a measure already planned. Of course, exports may well rise, but it would be risky to bet the farm on it.
As for investment, business surveys reveal a similar anxiety to consumers among firm managers, who are postponing investments amid the uncertainty not only of the tariff talk, but of possible sharp shifts in policy. For instance, many investments that had been planned amid the Biden administration’s Inflation Reduction Act may lose their subsidies or tax breaks. Until potentially-affected businesses get clarity on what Trump will do, and in particular if he goes ahead with tariffs or not, they’ll hold fire.
All told, after a record run, the American economy is starting to show signs of weakness. It’s too early to call a recession, but the risks of one coming are now rising.
John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).
jarapley
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SubscribeAnd will be stopped.
What bunch of nonsense this article is, over 50% of the military budget is salaries and benefits, unless Trump intends to fire tens of thousands of military personnel and eliminate their benefits there will be no cuts. Another 25% of the budget is maintaining the military bases in the country and around the world, does he really plan on closing many of those bases and letting go thousands in personnel and contractors that support them. Musk knows nothing about building planes and weapons, he ban barely build a decent electric car that most people want to buy and space x is a joke, so what if they built a useless rocket to go into orbit. Musk is a farce, military equipment like fighter planes and advanced missiles are at a whole other level, may beyond the Musk cult. And are they really going to cut procurement needed to replace aging and depleting equipment, and risk falling behind China and other countries in r and d. That is the other 25% of the budget. These people are a farce and their supporters need to get a grip and stop living in their alternate universe. Prediction: the military budget will increase to a trillion $ in 4 years.
Space X is no joke. It’s an amazing achievement, as are Tesla and his other enterprises. But, respecting his comments on the F35, I suspect that he is more focused on the procurement processes and a stripped-down number of suppliers that have little threat of competition. I agree that rocket science is less demanding than fighter plane and anti-missile science. Your numbers on where the defense budget goes are compelling.
In his latest comments, he said that he would sit down with the Russians and the Chinese and make the case that they should all be spending less of their economic output on their militaries. Yeah, because we can trust the Russians and the Chinese. They seem like decent chaps after all….
Because you can trust western governments? (Not One Inch)
There is so much potential for radical change. When I think of all that Trump is doing and proposing, it feels like I’ve won the lottery. It’s breathtaking. I hope SCOTUS clears the path.
It really puts in stark relief all the self-serving leaders who have gone before. If they had even done a fraction of what Trump is attempting, we would be much better off.
What he is attempting is to ensure that the US loses the forthcoming war with China. Not sure how that’s a good thing though.
I just read somewhere else that F35 cost $2 trillion more than budget not just $2T total. Wonder which it was.
He won’t “take on” the Military Industrial Complex, he’ll merely transfer its contracts over to Musk & Co.
It’s amazing how Musks political convictions swung to Biden when he was in charge then pivoted 180 to Trump when it looked like he’d be getting the keys to the White House
Seriously? Musk became enemy number one in the Biden administration the day he bought twitter and relaxed the censorship rules. He suffered from as much lawfare as Trump. If Musk was only interested in enriching himself, he would have donated millions and stayed in the shadows. He has put a target on his back by being so public and active.
This is correct. A very important part of the Musk psychology is that he doesn’t like being picked on (as he was when he was young). He doesn’t seem to forget those who have done so.
Musk does not crave money. He’s got more than anyone. He craves the freedom not to be told what he can and cannot do, as well as admiration, though not necessarily acceptance.
Correct. He is the same creepy little kid that got the hell beaten out of him at school. His problem is that he still has the same personality defects that caused it to happen.
Really? Well, hopefully someone, somewhere is a halfway decent shot (speaking figuratively, of course).
The UK has a benefits-industrial complex. There’s no more capacious mammary gland than long-term sickness disability benefit.
The growling Lord Dannatt may urge Starmer to increase defence spending, but to judge from Ukraine’s experience, the main components required are drones and mines. And of course, in the UK’s case, an humanitarian flotilla to ‘rescue’ migrants from the French Channel.
Is there a way to downvote articles?
Definitely not Dennis you always press the green up button to support.
All the best Tony
Still early days, but he might turn out to be the first anti-MIC president since Kennedy. Apropos of that, do we know any more about the young chap who shot Trump’s ear?
Under JFK, military expenditures exploded, and not only for his entry into the Vietnam mess. Eisenhower kept costs down a bit by relying upon the nuclear threat. Military spending as a percentage of GDP was much higher than today. In the shadow of WWII and Korea, the public grasped the threat of the USSR. In any event, Trump’s statement needs to be taken along with him calling for an Iron Dome for the US. Billions have already been spent since Reagan proposed what opponents named “Star Wars”, which has led to current capacities. Better won’t be cheap.
We know what happened to JFK.
Is he really “taking on” the military-industrial complex, or the educated-progressive Marxian elite?
Are the congressmen advocating that parts of the F-35 be made in their districts Marxists? That’s a curiously broad brush.
“Marxian”?
Odd comment about Starmer being in a driverless train.
Quite the opposite. He is relishing what he is doing.
Hiding the Labour-Muslim-vote corruption. (Not reported on Unherd)
Preventing a national Pakistani rape-gang inquiry. (Silence from the shameful Unherd Feminists)
Defending the cv-lying Reeves while she crashes the economy. (Ignored by Unherd)
Imprisoning Facebook posters. (Ignored by Unherd)
Prioritising international law over British interests. (The Chagos scandal. All Starmer’s lawyer friends involved. The Starmer-Hermer-Sands team. All ignored by Unherd.)
He is fully in control.
Perhaps the author meant a runaway train? There are no brakes, the engine cannot be stopped, the sharp curve approaches.
Perhaps. But to me Starmer is in full control of his party. And this is the strange one, given a free pass by the media.
He doesn’t get a free pass on UnHerd though.