Here are 5 Easy Reasons for a Pending Economic Slowdown.
1)Trade Wars
At the top of the list is the current trade wars. Frankly, it is hard to keep up. So far, President Trump has signed 93 Executive Orders and counting. If he signs 7 more by April 29, 2025, he will have averaged one a day. Just like taking a vitamin.
With investing, there is a term called Fear of Missing Out. This means investors are buying into the hype and are more concerned with missing the market going up than they are with it going down. The shorthand version is FOMO. However, all investors should be aware of Why You Shouldn’t Chase the Latest Investment Fad.
With trade we now have TOTO. No, we are not talking about the dog in The Wizard of Oz. TOTO here is shorthand for Tariff On, Tariff Off.
I get it that threating to implement or increase tariffs is an excellent negotiating tool. Having said that, our largest trading partners are our neighbors, Canada, and Mexico. I am not sure they are a ‘partner,’ but China is the next largest county we trade with.
It is difficult for businesses to make any long-weekend long-term plans with this uncertainly. This is problematic. Businesses will defer investing in any projects when uncertainly gets this elevated.
Tariffs will also affect inflation (see below). The prices for goods will go up. Consumers will pay this. Therefore, this will reduce consumption and slow growth.
We are not there yet but, to prepare, here are 6 Easy Steps to Navigate a Recession. Also, keep an eye out for 6 Black Swans Easy to See.
2)DOGE
DOGE is shorthand for Department of Government Efficiency.
The oxymoron of all oxymorons.
Chainsaw wheeling Elon Musk is affiliated with this organization. Mr. Musk is the CEO of Tesla (TSLA) and SpaceX, a private company. Additionally, he is also the richest person in the world with a net-worth of over $300 billion.
Furthermore, he is, obviously, one heck of a businessperson. He did not get there by being an action figure. He got there by being action oriented, on steroids.
After he bought X, formerly known as Twitter, he laid off 6,000 workers or 80% of its employees. I cannot verify if he used his chainsaw or just kept it in his holster.
DOGE has terminated federal workers (see below), terminated contracts and rescinded grants. While these may all help the bottom line, the pace of implementation is just staggering.
3)Unemployment
The Federal Reserve Board (Fed) has a dual mandate. Their primary goals are to have maximum employment and stable prices.
While it varies over time, the Fed considers unemployment of 4%-5% to be acceptable as maximum employment. As of February 2025, the unemployment rate stood at 4.1%, in the range of what they consider to be acceptable. 1)
The U.S. Bureau of Labor Statistics (BLS) publishes the unemployment rate. The BLS issues six different unemployment rates monthly. The official rate that the Fed uses is the so-called U-3.
There is another index called the U-6. This index includes discouraged, underemployed, and marginally attached workers. Astute commentators believe this is a more accurate representation of unemployment. As of February 2025:
This rate stood at 8%.
The Federal Government currently employs about 2.2 million employees. This excludes military and employees of the U.S. Postal Service. The government recently offered a buyout to its employees and about 75,000 have accepted.
Additionally, so far, about 60,000 federal employees have been dismissed. Although the situation is fluid, expect larger numbers for their Reduction in Workforce (RIF) beginning in late Spring and early Summer this year. There have been lawsuits filed, there are sure to be more coming.
It was not long ago when disengaged employees engaged in “quite quitting.” These folks did not actually quit. They did the absolute minimum amount of work required. However, they still got their check each week via direct deposit. They were sitting on their assets chair and not working. Strike that, they were working. 100% on their personal stuff.
If federal employees are being let go, how much “quite quitting” do you think employers will allow any Average Joes going forward?
The current administration has also jumped on migration and deportation. Although the Mexican border is still open, illegals crossing the border are down 94% from a year ago.2) Additionally, the government has also been deporting criminals.
One potential labor challenge is in the agricultural industry and the trades. They both have a long history of having undocumented workers. This means there will be less workers in both the agricultural industry and the trades.
The work- from- home-model (WFH) is also under strain. The WFH model was an outcome of the COVID-19 pandemic. Employers still needed to get the work done, so they helped employees get set up to WFH.
Now that this version of the pandemic is behind us, employers want their employees back in the office. Employees are pushing back. Historically, the technology industry was the most accommodating with the WFH model.
However, last year, Amazon (AMZN) told employees they need to be in the office at least three days a week. Apple (AAPL), Google (GOOGL) and Meta (META) had already implemented this.
Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co (JPM) has been vocal also. He has upped the ante by telling employees to be in the office now five days a week, up from three. We will see where all of this goes.
4)Inflation
As mentioned above, the Feds dual mandate is maximum employment and stable prices. How they measure stable prices is through inflation. Their preferred measuring tool is the Personal Consumption Expenditures (PCE) Price Index. The Fed has traditionally targeted inflation of 2%. As of January 2025, the PCE was 2.5% compared to January 2024. 3)
The current PCE is down significantly from the COVID-19 induced high rate of 9.1% in June 2022, a 41 year high. The primary tool the Fed used to decrease inflation was by increasing interest rates. They continuously raised interest rates from near 0% to 5.25% to 5.5% at the end of 2023.
While it is good that the rate of inflation is declining, well, stuff is much more expensive now than it was in 2020. Since the beginning of 2020, the cumulative inflation has been 22.74%. Said differently, a dollar today buys 81.3% of what it did back then. 4)
Ouch.
The Consumer Price Index (CPI), another measure of inflation, which is heavily influenced by housing or shelter. This accounted for one-third of the inflation. This is not hard to see, is it? In New England, anecdotally the Boston area is the winner. That is, of course, unless you want something on the water.
Keep in mind, the PCE excludes energy and food prices in their calculation. This is because these prices are volatile. Roger that. I am not sure what it is like for you, but we eat, drive and heat or cool our house. Just saying.
5)Consumer Confidence
The Consumer Confidence Index (CCI), which measures how optimistic or pessimistic consumers are, is issued by The Conference Board. This index fell 7.0 points from 105.3 to 98.3 in February 2025. For historical perspective, the CCI hit a low in April 2020 of 85.7. This was an outcome of the beginning of the COVID-19 pandemic. Conversely, the CCI reached a high in June of 2021 of 128.9 as the economy was beginning to recover from the pandemic.
Consumer confidence is vital. Consumer spending accounts for approximately two-thirds of the economy. That is not hard to see, is it?
Back in the day they had these things called shopping malls. These sprouted up when the Sears Catalog and Green Stamps were getting a little long in the tooth. You would get in your car and drive to the mall. And spend time shopping there.
Then in mid-1994 there was a small start-up company formed in Bellevue; Washington called Cadabra. I am sorry, you might not recognize the name. They had a name change five months later. The new name is:
Amazon.
The rest, as they say, is history. Go online and buy all the stuff you want need.
What helps consumer confidence?
First, working. There is nothing like direct deposit, right?
Second, the idea that you will be able to keep working and getting your direct deposit. You do not want to end up as part of the unemployed folks. Remember:
It is a recession when your neighbor is out of work. It is a depression when you are out of work.
Third, access to credit. Boy, does this help consumer confidence. Oh, and consumer spending.
The total amount of unsecured personal loans at the end of 2024 was a record $251 billion. This is up from $104 billion in 2014. 4)
Personal loans do not include mortgages, car loans, credit cards or student loans. And personal loans dwarf these loans which total about only $18 trillion.
Finally, The Joneses. And are they everywhere. They all have the McMansion, fancy cars in the driveway and annual vacations to tropical islands or Europe. How does this help consumer confidence? Easy, a ton of people feel they need to keep up with The Joneses. Therefore, they spend money. Frequently it is money they do not even have.
The Road Ahead
As Yogi Berra said, “It is tough to make predictions, especially about the future.”
True that.
Action Item
If you need help with the 5 Easy Reasons for a Pending Economic Slowdown, give us a call at (860) 645-1515 or E-Mail Thomas.scanlon@raymondjames.com.
1) fed.stlouisfed.org/series – March 7, 2025
2) cbsnews.com – January 20, 2025
3) bea.gov/news – February 28, 2025
4) in2013dollars.com
5) fool.com – March 19, 2025
The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the forgoing material is accurate or complete. Any opinions are those of Thomas F. Scanlon, CFP®, CPA, and not those necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.