A string of weaker-than-expected data has economists' projections for first quarter economic growth sliding.
On Monday, two separate releases showed activity in the manufacturing sector slowed in February while construction spending fell more than anticipated in January. The Atlanta Fed's GDPNow tool, which uses already released data to forecast the quarterly pace of economic growth, now projects GDP fell by 2.8% in the first three months of the year, down from Friday's projection of a 1.5% decline.
Uncertainty around President Donald Trump's tariff policy appears to be weighing on business activity, particularly in the manufacturing sector. ISM's manufacturing index fell to a reading of 50.3 in February from 50.9 in January. Meanwhile, the prices paid index surged to a reading of 62.4, up from 54.9 the month prior, marking its highest level since July 2022. The rise reflects increasing costs to companies.
"The whole story here is really around the tariff issue," Institute for Supply Management chair Timothy Fiore told Yahoo Finance. Fiore explained that price increases lead to lower new orders from businesses and could also impact hiring plans.
If Trump's proposed 25% tariffs on Mexico and Canada are enacted Tuesday, Fiore said he expects the situation to worsen, with prices continuing to increase and manufacturing activity further weakening.
Read more: What are tariffs, and how do they affect you?
"If you stay on the path that we're headed on, I think it's going to be tough, a tough route [for the US economy]," Fiore said.
Monday's data was just one of the many prints that have come in weaker than expected to start 2025. In January, consumer spending fell for the first time in nearly two years, and separate data showed retail sales saw the largest monthly decline in a year. Meanwhile, housing activity has remained in the doldrums. Citi's economic surprise index, which measures how data comes in relative to expectations, shows growth data has been missing the Street's mark for most of the past month.
Subsequently, many economists have been slashing their GDP outlook for the quarter as the data has come in.
"The January figures of private construction have lowered our estimate of Q1 GDP to 0.6% annualized, down from 1% at the end of last week and well below the 2.5% penciled into the February baseline forecast," Oxford Economics lead US economist Bernard Yaros wrote in a note on Monday.
Meanwhile, JPMorgan recently reduced its projection for first quarter GDP to 1.5% from a previous estimate of 2.25%. Goldman Sachs' latest projection is 1.6% GDP, down from an initial projection of 2.6% in late January.