Will there be a Trump recession?
Summary
Economic signs are mixed, but his willy-nilly tariffs have markets worried.Recession fears are roiling markets, as tech stocks and the Dow Jones Industrial Average fell sharply again on Monday. Stock prices have been richly valued for some time, and this may be merely a market correction. But there are also signs of a slowing economy that should have the Trump Administration on alert.
Mr. Trump didn’t help the mood with his cagey response to a question by Fox News host Maria Bartiromo in a Sunday interview about whether he expects a recession this year. “I hate to predict things like that," he replied. “There is a period of transition, because what we’re doing is very big."
Asked later on Sunday about his reluctance to rule out a recession, he again wavered, “I tell you what, of course you hesitate. Who knows?" His uncharacteristic equivocation rattled markets that maybe he doesn’t mind a “little disturbance," as he put it in his speech to Congress last week. After several turbulent weeks, stocks have erased their gains since Mr. Trump’s election and more.
Mr. Trump was right to note that a President shouldn’t be preoccupied with short-term investor reactions to economic policies that will boost long-term growth. But there are flashing signs that the U.S. economy is slowing.
Take Friday’s jobs report, which showed employers added 151,000 jobs last month. That’s half as many as in November and December. Leisure and hospitality jobs have declined in the past two months, which may indicate that consumers are pulling back on discretionary spending.
The labor force participation rate also fell 0.2 percentage points to 62.4% owing to a decline among men. Manufacturing gained 10,000 jobs in the month. But the number of workers employed part-time who wanted but couldn’t get full-time work increased by 460,000 to 4.9 million, the most since spring 2021.
The Institute for Supply Management’s purchasing managers’ index (PMI) registered growth in manufacturing last month, but this was fueled by a surge in prices to the highest level since summer 2022 when inflation peaked. Comments from survey respondents showed that uncertainty about Mr. Trump’s willy-nilly tariffs are weighing on business sentiment.
A transportation equipment manufacturer said “customers are pausing on new orders as a result of uncertainty regarding tariffs." A machinery manufacturer said “the incoming tariffs are causing our products to increase in price" as “sweeping price increases are incoming from suppliers." When tariffs cause steel prices to rise, steel-using companies raise prices.
Even service businesses are being whipsawed. “Tariff actions have created chaos in information and pricing measures," reported an accommodation and food services business.
Tariff uncertainty is coinciding with rising consumer anxiety. After an uptick last autumn, the Conference Board’s consumer confidence index sank in February as inflation expectations rose. Many respondents cited tariffs.
Consumers are showing strains from four years of inflation with delinquencies on auto and credit cards approaching levels last seen in the aftermath of the 2008-09 recession. A stock market correction could also harm Main Street by reversing the so-called wealth effect that has buoyed consumer spending. The top 10% of earners account for about half of consumer spending. Less government spending, while necessary to free up resources for private investment, may dent GDP in the short term.
All of which suggests slower growth ahead, even if the economy dodges recession. Mr. Trump’s deregulation and an extension of the 2017 tax reform should buoy business investment over the long term. But the higher costs and uncertainty caused by his tariffs are hurting the economy now. If Mr. Trump wants to quiet recession alarm, he would be wise to put his tariff plans on the shelf.
