Unless you’ve got a large financial cushion and have bet against the economy, you likely have no reason to rejoice in the idea that gross domestic product growth is slowing.
Crashing Economy?
The disturbing news is that it could be slowing far faster than the overall Federal Reserve expected, potentially into the realm of contraction that could set the stage for a recession. The Atlanta Fed’s GDP growth predictor’s estimate on March 28 was that the first quarter would see -2.8% growth.
Somewhat more optimistically, a small group of 14 economists polled by CNBC estimated that first-quarter growth will only reach 0.3% “as tariffs stoke stagflation conditions.” (The original definition of stagflation from the 1970s was the combination of high inflation, high unemployment, and low growth, but it’s more frequently being taken as higher inflation and low growth these days.)
Either of these outcomes would seem far off from the Fed’s mid-March economic projections that 2025 would see 1.7% GDP growth. That was already down from the December 2.1% estimate.
Not to overestimate the estimates. As that part of the central bank makes clear, the Atlanta Fed’s predictor isn’t an official forecast. It’s a mathematical model based on available economic data that doesn’t include past reports and analyses that might affect current interpretation. The opinions of 14 economists, collected by CNBC, are a limited sample and could be far off.
Any growing pessimism isn’t a product of the ether. Multiple trends are coming together in a macroeconomic tapestry. One is the danger that a lack of federal government fiscal discipline has increased the possibility of yet another credit downgrade. The Congressional Budget Office’s projection of future deficits is discouraging. The labor market is under strain, even as unemployment remains low. Tariff disruption is jarring markets with the additional potential of driving inflation up.
Developing Factors
No single one of these factors would be enough to trip the economy. But each comes with a probabilistic potential for disruption. The more factors that exist, the larger the possibility that something might happen.
A slowdown in GDP growth, or even a reversal — remembering the rough rule of thumb that two consecutive quarters of negative economic growth means a recession — is an obvious undesired outcome.
There are also others. One would be rising unemployment that was a byproduct of either a slowdown or a full-on recession. Consumer worry is another.
The Conference Board’s Consumer Confidence Index fell for the fourth consecutive month and their “expectations were especially gloomy, with pessimism about future business conditions deepening and confidence about future employment prospects falling to a 12-year low,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board, in prepared remarks. Optimism about future income, which had been strong, “largely vanished, suggesting worries about the economy and labor market have started to spread into consumers’ assessments of their personal situations.” Consumer spending is about 69% of GDP and has been holding up the economy.
Maybe the overall Fed take will be right, although that is expressed as an annualized figure, leaving room for a bad quarter.
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