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).
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SubscribeSleepy Joe left such a poisonous economic legacy, 2024 might have been a good election to lose.
Did you actually read the article? Or did you just not understand it?
Tariffs are somewhat of a red herring here – The Chair of US Govt Economic team (Steve Miran) has stated the strategy is to weaken the dollar to offset any tariff impact. The weak dollar is by design.
No sh*t sherlock.
The position Trump inherited was neither as good or as bad as some of the tribal leanings. It needed an adult to take over the Helm and stir carefully through still choppy waters.
However when you then get the chainsaw out and swing it around clumsily, spout nonsense about tariffs where you clearly don’t really understand the concept, make it likely you’ll increase the national debt to fund your contradictory promises and create the general impression of chaos you clearly don’t much help business certainty.
Although partly true, your point would have more weight had the author not pointed out that US Government spending – that is, by the racking up of $2 trillion a year in deficit spending which is then added to the current $36 trillion national debt – is partly responsible for propping up the US economy.
One shouldn’t spend themselves into oblivion on credit cards while pretending that such spending means that they’re doing just fine financially (just look at all of the trinkets, baubles, widgets and holiday trips that they’ve purchased!). Sooner or later, the bill always – always – comes due.
Just as a more responsible spouse might be required to cut up their partner’s credit card for taking on extreme debt, Trump is doing the same.
The exuberant, excessive, and worldwide party that has been partly funded by US citizens mortgaging their children’s futures, is over.
Buckle up – we’re about to pay the price for the fiscal sins of prior US Congresses and prior Presidents (yes, inclusive of Trump’s first Administration). Gone are the days of acting like an ostrich with its head in the sand.
The general point about you got to pay for stuff eventually concur with (although obviously growth can wipe out alot of debt if you do no more than stabilise spending). The question though is whether Trump is really cutting up the credit card or merely selling you that story?
He’s not gone after the big money – Defence, Health, Social security – and he promised not to. He wants the tax cuts and he wants to spend more on detention centres and Sheriff Joe’s. He’s not paying for it by cutting USAID and a number of Federal employees. It’s tiny in the bigger scheme of Federal expenditure, and whilst some need to go one suspects once implications roll through to Senators, House members and Voters, it won’t be as large as currently suggested. He’ll thus need to increase the national debt or fail on his promises. He’s at risk of that even more if he pushes up inflation and hits business confidence.
“…John Rapley is an…academic…”
So, Mr. Rapley, governments have a history of failure following a pledge to carry out an action yet, because Canada claimed it had existing plans to expand border security, the increased pressure of a tariff was unnecessary. Correct?
“All told, after a record run…” fueled by trillions of deficit spending during and after Covid. All parties end at some point when the liquor runs out.