Bad news about the US economy travels fast, but examples of a slowing economy are potentially being blown out of proportion.
Consumer spending declined in January for the first time in nearly two years, a real-time forecast of economic growth recently turned negative, the housing market was off to a sluggish start this year and the air is rife with uncertainty because of President Donald Trump’s frenetic back-and-forth on tariffs.
The Conference Board’s latest consumer survey even showed that the share of respondents expecting a recession in the coming year jumped in February to a nine-month high.
But data for the beginning of the year was skewed by temporary forces, such as unusually harsh weather and wildfires. The underlying fundamentals remain solid: Employers continue to add jobs at a healthy pace, unemployment has stayed low and wages are still outpacing inflation.
And it’s true that Americans are feeling uneasy because of Trump’s tariffs, but sentiment is not great at predicting future spending behavior.
One cause for concern, though: The Fed still isn’t done bringing inflation to target, and the threat of a global trade war sparked by the Trump administration could jack up consumer prices further.
”Demand is showing some fraying around the edges, but it hasn’t accumulated to enough to be a meaningful risk of a downturn.” Vincent Reinhart, chief economist at BNY Investments, told CNN. “Inflation is still a top priority.”
It’s too soon to be worried
In January, large swaths of the United States were buffeted by severe winter storms; over in southern California, deadly wildfires ravaged neighborhoods.
Those events likely curbed economic activity that month, economists say: Consumer spending fell 0.2%, according to government data, as home construction plunged 9.8%. That triggered a real-time forecast of economic growth by the Federal Reserve Bank of Atlanta to show the economy contracting a sharp 2.4% in the current quarter. (The numbers will almost certainly change in the government’s official estimate of gross domestic product for the first quarter, due in April.)
“We’ve only gotten data for early in quarter, and that GDP tracker adds in new data as we go along,” so the numbers can be affected by a big drop, said Blake Gwinn, head of US rate strategy at RBC Capital Markets. “It’s only going to even out.”
St. Louis Fed President Alberto Musalem said in a speech Monday that rough weather was likely the culprit behind shoppers pulling back earlier this year, which is why he still thinks that “the prospects for continued growth look good.”