Despite widespread predictions of an economic slowdown in the U.S., the data tells a different story. While market sentiment remains cautious, key indicators continue to reflect resilience, raising the question: Is the economy truly weakening or are analysts misinterpreting the signals? In this article, we break down why the outlook feels so gloomy despite solid economic data. We look at how lagging indicators, post-pandemic consumer spending and key policy moves such as tariffs, immigration and government spending cuts could shape the road ahead. With so much uncertainty, understanding where the economy is actually headed is more important than ever. Market consensus is that of an economic slowdown in the U.S., however, the data says otherwise?

How can we reconcile the general pessimistic view with a steady flow of solid and positive economic data?

We believe that the short answer is to focus on where the economy is going and not where it has been. Economic data points are largely lagging indicators and are still riding high off the back of COVID stimulus packages. However, as the consumer runs out of steam, so will the U.S economy. Figure 1 shows us that households temporarily held back expenditure during hard lockdown periods in 2020/21. These are shown as the red dots in the figure. However, as lockdowns were lifted the consumer made up for lost time, spending above average into 2023, shown by the green dots. Spending moderated into 2024 (the purple dots), suggesting that the pandemic stimulus and excess savings tailwind has run its course and is expected to continually slow and eventually cease.

figure 1

How will tariffs, immigration and White House policy impact the U.S economy?

In the short-term tariffs are likely to be inflationary in the short-term, however, could turn out be disinflationary long-term as hindering trade is expected to undermine economic growth. As it stands, markets are not reacting significantly to the threat of tariffs, largely because it appears as though they are merely threats and negotiating tactics and not yet realities. The Trump administration’s immigration policies are expected to have a similar impact with short term inflationary pressure followed by a longer term slow down of economic growth as the U.S loses access to a cheap, foreign and often undocumented labour force. This is a long-term issue in the U.S. as the immigrant labour force has been subsidising and he native-born population growth has been stagnating. Spending cuts and ‘fiscal belt tightening’ proposed by the Department of Government Efficiency (DOGE), while extreme, are likely to set the government’s budget on a far more sustainable trajectory. Deregulation is also likely to boost economic growth, albeit, focused on targeted sectors specifically financials (shown in figure 2) along with energy, materials and industrials. All in all, it is difficult to forecast the net effects of the Trump administration’s policies, however, the general consensus is that it will fall short of expectations both to the upside and downside. The reality is expected to fall somewhere between the administration’s promises and political naysayers.

figure 2

While the current economic data suggests resilience, the bigger picture is more complicated. As the effects of pandemic stimulus wear off and consumer spending slows, we’ll get a clearer sense of where things are really headed.  Policy decisions such as tariffs, immigration rulings, and government spending cuts will all play a role in shaping growth.  While there is a lot of uncertainty, the one clear thing is that focusing only on past data can be misleading.  We believe that the key to anticipating where the economy is headed is to keep a handle on indicators showing where the economy is headed, rather than merely focussing on historic trends.

Whether you have an established business or are just starting out, if you are exposed to currency fluctuations, having a robust and tested foreign currency risk management policy in place is critical to protecting your cash flows and ultimately your bottom-line. Contact me, Trent Wiseman, should you find this article insightful – phone 021 819 7826 or email twiseman@wauko.com.