The U.S. economy is facing mixed signals, sparking debate over whether trade policies under former President Trump could lead to a significant downturn. Surveys on consumer and business confidence, known as "soft data," suggest a noticeable economic slowdown due to trade policy and reduced federal spending. In contrast, "hard data" from government statistics, like employment and manufacturing, indicate that fears of stagflation or recession might be exaggerated.
This conflicting data has left Washington and Wall Street uneasy about the U.S. economic outlook. Recently, the U.S. has shifted from being a global economic leader to a major source of uncertainty. Federal Reserve officials have made their largest downward adjustment to growth forecasts since 2022, and the OECD has warned that U.S. trade policies could slow global growth.
Much of the concern stems from consumer sentiment surveys by the University of Michigan and the Conference Board, which highlight worries about tariffs driving up prices. Executives from companies like Nike and Delta Air Lines have noted this trend, leading to a significant market value loss over the past month.
Citigroup's Chief U.S. Economist, Andrew Hollenhorst, advises not to view trade policy as the sole economic driver but stresses the importance of consumer surveys in gauging future expectations. The University of Michigan's recent survey reported a record-low outlook on personal finances and the highest inflation expectations in over 30 years for the next 5-10 years.
Federal Reserve Chair Jerome Powell has attempted to calm inflation concerns, describing the figures as anomalies and noting that the relationship between soft and hard data is not closely aligned. He suggests that policymakers should wait to better understand Trump's policies before taking action.
The Trump administration has done little to alleviate these concerns, with advisors suggesting that the so-called "golden age" for the U.S. economy may take months or longer to materialize. With more tariffs expected soon, economists are bracing for another market sentiment hit.
Meanwhile, hard data shows the economy is cooling but not in recession. February saw slower job growth and a rise in unemployment, yet the labor market remains robust. The Consumer Price Index (CPI) for February recorded its slowest growth in four months.
Other data presents a mixed picture. February's manufacturing output exceeded expectations, likely due to manufacturers ramping up production ahead of tariffs. New home starts rebounded, attributed to a recovery from weather-related declines in January. However, consumer spending trends remain concerning, as reflected in retail sales and inflation-adjusted spending data from the Commerce Department.
Powell maintains the economy is solid overall, despite concerns highlighted by soft data. If these concerns impact hard data, signs should emerge soon, and appropriate judgments will be made.
