Scott Gurvey's Public Offerings

The Trump Recession is upon us. Not officially, that could take months. But the handwriting is on the wall. Just as clear as it was one year ago when every creditable economist warned Donald Trump’s plans for trade tariffs and government layoffs would knock the Goldilocks economy of Joe Biden off its feet. Seventy-seven million voters didn’t believe it. Or didn’t care. Now they can care. Or not. It’s hard to tell.

The latest GDP report shows that the U.S. economy contracted by 0.3% in the first quarter of 2025, marking a sharp downturn from the 2.4% growth in the final quarter of 2024. This decline was largely driven by a surge in imports ahead of Trump’s newly announced tariffs, which widened the trade deficit and negatively impacted GDP calculations.

Yes, I must caution that the numbers may be skewed due to businesses stockpiling goods before the tariffs take effect. But consumer confidence has also dropped significantly, and the stock market has taken a hit, adding to fears of an economic slowdown. The job market remains relatively stable, with an unemployment rate of 4.2% in March. But the job market is the last to feel the effect of a downturn.

For analysts this GDP report was a surprise. Wall Street’s forecast was for an advance of around 0.4%. The contraction marks the first time the economy has shrunk since the first quarter of 2022. Overall consumption slowed to 1.2% from 2.7% over the final months of last year. Government spending contracted 0.25% following a rise of 0.52% over Q4 2024.

The PCE price index for the first quarter was also outside Wall Street’s forecast, with the Federal Reserve’s preferred measure rising 3.6% on a headline basis, and 3.4% after stripping out volatile components such as food and energy prices. That is bad news on the inflation front.

Americans are increasingly worried about a recession. That fear itself can help cause one. A recent Pew Research Center survey found that only 23% of Americans rate the economy as “excellent” or “good,” while 45% expect economic conditions to worsen within the next year. Economic concerns have intensified following President Trump’s April 2 tariff announcement, which triggered stock market volatility and uncertainty.

Additionally, consumer sentiment has dropped to its lowest level since the early 1980s, comparable to past economic crises like the Great Recession and the COVID-19 downturn. Rising prices for food, housing, and energy remain top concerns, outweighing worries about job availability or the stock market.

A recession can significantly alter consumer spending habits as people become more cautious with their finances. Consumers tend to reduce spending on luxury items, entertainment, and dining out, prioritizing necessities like food, housing, and healthcare.

Shoppers become more price-sensitive, opting for generic brands, discount stores, and sales promotions to stretch their budgets. Big-ticket items such as cars, appliances, and vacations are often postponed until economic conditions improve.

Those who can afford to save may prioritize building emergency funds, while others struggle to maintain previous savings levels. More consumers turn to online shopping and bulk purchases to reduce costs, while discount retailers see increased traffic.

Trump has been making excuses for a downturn. In early February he said tariffs on Mexico and Canada could cause some short-term pain, but the US has been “ripped off” by many countries. That characterization strikes this reporter as a gross misunderstanding of the world trade regime that has made the Unted States the world’s greatest economic power and made the U.S. dollar the world’s primary exchange currency.

Trump also says, now, that people will understand the need for some “short-term” pain. That is not the tune he sang on the campaign trail. During last year’s debate with Vice President Kamala Harris, Trump was asked if his proposed tariffs would lead to higher prices for American families on gas, food, clothing, medicine and more, as many economists predicted. “They aren’t going to have higher prices,” Trump insisted. “Who’s going to have higher prices is China and all of the countries that have been ripping us off for years.”

He made similar promises throughout the presidential campaign, saying at a rally in September that “it’s not going to be a cost to you; it’s going to be a cost to another country.” The president also repeatedly vowed to quickly reduce the price of groceries, utility bills and more, insisting that he would “immediately bring prices down, starting on Day 1.”

And last but not least as it was entirely predictable, Trump has been harshly critical of Federal Reserve Chair Jerome Powell. Trump is ready to blame Powell and the Fed’s interest rate policy for a downturn. He has threatened to fire the chairman, which would be unprecedented and raise constitutional issues. The markets react negatively to the mere suggestion of firing Powell, who has said Trump lacks the authority to fire him. Trump now says he has “no intention” of doing so. These flip-flops drive the markets crazy.

It’s past day one hundred. Are we all rich yet?

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