President Trump inherited an economy that, according to most conventional measures, shot all cylinders. Wages, consumer spending and business profits were rising. The unemployment was low. Inflation, although higher than normal, decreased.
Only a few weeks after Mr. Trump is the prospect gloomy. Measures of business and consumer confidence have fallen. The stock market has been on a roller coaster ride. Dedundancies are collected according to some data. And predictors are reducing their estimates for economic growth this year, whereby some even predict that the gross domestic product in the US could shrink in the first quarter.
Some commentators have continued and claim that the economy could be on its way to a recession, a sharp rebound in inflation or even the dreaded combination of both, 'stagflation'. Most economists believe that it is unlikely that growth slow down rather than make room for a decline.
Yet the sudden deterioration in the prospects is striking, especially because it is almost complete a result of Mr Trump's policy and the resulting uncertainty. Rates, and the inevitable retribution of trading partners, will increase prices and slow down growth. Federal job reductions will increase unemployment and can lead to government employees and contractors to withdraw while they wait to learn their fate. Deportations can increase costs for industries such as construction and hospitality that depend on immigrant work.
“If the economy started in pretty good form, it is probably in less good form after what we have seen in recent weeks,” said Donald Rissmiller, chief economist at Strategy, a research agency.
A strong base
The US economy has repeatedly demonstrated its resilience in recent years and there are parts of Mr Trump's agenda that can promote growth. Business groups have responded enthusiastically to Republican plans to reduce taxes and to lower the regulations. A streamlined government could in theory make the overall economy more productive.
Until now, however, the approach of the Trump government of economic policy has been more characterized by chaos rates that are announced and then delayed, government workers who are fired and re -adopted – than by a careful planning.
Michael R. Strain, an economist at the conservative American Enterprise Institute, said that Mr Trump's policy on trade and immigration, and his slash-and-burn approach to federal job reductions, would have a harmful effect.
“What President Trump has suggested will not cause a recession,” he went on. “But it will slow down economic growth. It will get money from people's pockets. It will increase the unemployment rate. It costs people jobs. It will make American companies less competitive. “
'Death due to a thousand paper cuts'
It is certainly possible that the policy of Mr. Trump meets in a way that causes a recession. This year's rates alone were able to shave a full percentage of the growth of the gross domestic product, according to some economic models – enough to reduce half of the growth rate of 2 percent that the economists expected to enter this year.
Many economists claim that the deportation of millions of immigrants – as Mr Trump promised on the campaign track last year – could be even more harmful than rates, given the needs of the US economy to employees, in particular in industries such as construction and health care.
And the urge of the administration to reduce the federal government, an attempt led by Elon Musk, could leave hundreds of thousands of federal employees and government contractors who are looking for jobs when the acceptance is delayed. That could cause a chain reaction: employees who lose jobs, or are worried, would withdraw to spending, what would force companies to save costs, which leads to more dismissal and further reductions in expenditure.
Normally this would lead to the Federal Reserve to lower the interest rates and to strengthen the economy. But that can be difficult if rates also increase prices, making policy makers nervous that reducing interest rates could stimulate inflation.
“It is a dead by a thousand paper cuts,” said Jay Bryson, chief economist for Wells Fargo. “All these things are individual not enough to cause a recession, but if you put them on top of each other, it can be that.”
However, most economists think that such an outcome is relatively unlikely. For example, Mr. Trump has repeatedly delayed the complete enforcement of his promised rates – on Thursday he suspended the rates for most imports from Mexico and Canada until April. His deportation efforts are also a slow start. And some cuts on the federal workforce are tied to court.
Such delays and reversations will help to clash the impact of Mr Trump's policy, and can make a recession less likely, at least in the short term. But the long -term uncertainty could have its own costs, so that companies postpone investments and hire decisions.
“If we don't get any clarity at the back of this year, economic uncertainty can be like a deer in the headlights,” said Nancy Lazar, Chief Global Economist at the Investment Bank Piper Sandler. “Things just stop. Business trust is filled in, employment is filled in and the capital expenditure is put on hold. “
Long -term costs
Even if Mr Trump's policy does not cause a recession, they can cause long -term damage. Lower immigration will leave the country with a smaller labor force because the indigenous population is getting older. Commercial barriers will be a relatively modest resistance to growth while they are in place – a chronic condition, instead of an acute one.
“It is less as if the economy is in a car wreck, and it is more like the economy has decided to start smoking a package a day,” said Michael Madowitz, an economist at the Roosevelt Institute, a progressive group.
The consequences may be more difficult to ignore in certain places and for certain groups. Veterans, who form a disproportionate share of federal employees, can be particularly difficult to hit by the government dismissals. This also applies to parts of the country that are highly dependent on federal jobs: there are already signs that house prices are falling in the metropolitan area in Washington.
“It will be substantial for certain communities,” said Gbenga Ajilore, chief economist for the center on budget and policy priorities, a liberal think tank. “If you look at the aggregated, you miss many underlying details.”
