In the Harvard Gazette today, and interview with Frankel:
The latest University of Michigan consumer sentiment index shows economic confidence is at its lowest since November 2022. Also, hiring has cooled. Do these developments point to a recession or something like 1970s-style stagflation?
I think it is appropriate to worry about a recession coming within the next year. It’s much more likely than one would have thought a year ago.
I see five things going on that could logically lead to or worsen a recession. One is the trade war. The second is a stock market crash. The third is major cuts in government spending, assuming Musk and Trump manage to find genuine cuts. The fourth is a U.S. fiscal crisis because of a government shutdown, failure to raise the debt ceiling, or a downgrading by Moody’s, the credit rating agency. The fifth is a general increase in perceptions of risk. Risk is increasing because what Trump has done on tariffs and on government spending has been so erratic. It’s almost as if they’re doing everything they can to increase perceptions of variability and volatility and unpredictability. The uncertainty itself has a negative effect.
The instability has alarmed not just investors, but also sectors like real estate and health care, with many businesses shifting into “wait and see” mode. What are the implications for the wider economy?
If the uncertainty only lasted a minute, it wouldn’t have much effect, but it’s clearly going to last longer than that. Even if it takes a few months to resolve these issues, that could be enough to hurt employment and income and even to cause a recession. In the extreme, if all hiring stops for a month or two, that itself would cause a recession.
Intuitively – I would think it would be difficult for these MAGA/Trump yahoos to bring down the U.S. economy into a recession and was thinking stagflation was a more likely scenario. Capex spending will be interesting to watch – with the GOP cutting out CHIPS act spending to their own districts and now – various allies seeking alternatives to expensive U.S. military hardware – (yes – even our century-old closest allies – such as Canada are seeking alternatives https://apnews.com/article/trump-f35-defense-military-fighter-jets-7e18c5459228d16769385dd0b8c3d930) Capex seems to have flat-lined since the start of the year – Also watch small business start ups/formation which was at record highs under Biden. I recall – please check – that small business employment accounts for the majority of employment in the U.S.
Also it looks like MAGA is all in on crypto-currency – U.S. Commerce Secretary Howard Lutnick really wants to make a fortune on the crypto and have the U.S. taxpayer finance it all. The GOP wants to drive our economy with online sports betting, in-game purchases, and money laundering.
Pain-in-the-neck presentation, but yes, small business accounts for more net job gains so far in this century than do large firms:
https://www.bls.gov/bdm/bdmfirmsize.htm
I couldn’t find levels, only changes, but if changes favor small firms, then eventually levels must favor small firms.
Off topic – Zhanna Nemtsov, daughter of Boris Nemtsov, has a clear-headed assessment of what Putin wants out of a peace deal with Ukraine:
https://www.politico.com/news/magazine/2025/03/18/ukraine-putin-peace-deal-zhanna-nemtsova-00205594
The gist is that Putin’s invasion had more to do with internal Russian politics than with an external threat. (We all knew that, yes?) A prosperous, democratic neighbor was bad for Putin. He probably wants a cease-fire now, but only for a while – long enough to re-arm, take pressure off the economy and recruit soldiers at a lower cost. Memtsov raises the prospect of Putin invading Belarus once he’s had time to spruce up his military.
Memtsov’s recommendation is to keep sanctions in place and make steep demands on Russia in return for a peace deal. Obviously, Putin will reject that sort of proposal initially, but if he needs a break badly enough, we could get concessions that would make future Russian aggression less likely.
I find it interesting that Wall Streeters have gone from “It’s the Trump trade – invest everything into stocks!” to a month later “trump is crashing the economy! – the Fed must lower interest rates – now!”
Meanwhile – back in the real world – The recently released World Meteorological Organization’s State of the Global Climate 2024 report depicts a planet with increasing temperatures due to record high levels of human-caused greenhouse gases. The report finds that current levels of the main long-lived greenhouse gas is at a record high of 151% of preindustrial levels back in the year 1750. This is the highest level of CO2 in at least 800,000 years, and likely long before that, the report found.
Current levels of methane, a powerful, short-term warming agent, are 265% of preindustrial levels, the report shows. The consequences are increasing sea level rise, melting glaciers and extreme weather events. https://wmo.int/sites/default/files/2025-03/WMO-1368-2024_en.pdf
And yet the Fed downgrades US growth, ups inflation, and says interest rate trajectory won’t change, but the Wall Street traders think it’s a good thing?
They really don’t have a clue, do they?