“Trumpcession” Warning from the Atlanta Fed
Cailian News Service reported on March 4 that the GDPNow model, released in real time by the Federal Reserve Bank of Atlanta, has sounded the alarm for what some are calling a “Trumpcession.” The model predicts that the US GDP growth rate will fall to its lowest level since the COVID-19 pandemic began in early 2020.
Last Friday, the model slashed its forecast for annualized GDP growth in the current quarter to a shocking -1.5%, causing an uproar in the markets. If this forecast holds, it will mark the first contraction in the US economy since Q1 2022. However, just over the weekend, the projection worsened even further—by Monday, it had dropped to -2.8%.
It’s worth noting that just a month ago, the same model predicted annualized US growth of nearly 4%. Even as recently as last Monday, the forecast stood at +2.3%.
So, what caused such a dramatic collapse in economic expectations within just two working days?
Is It All Trump’s Fault?
The Atlanta Fed’s GDPNow model constantly updates its forecast based on the latest economic data, so fluctuations are normal. However, the sheer scale of the recent downward revisions has stunned analysts.
Key Factors Behind the Sudden Downturn
- Record-Breaking Trade Deficit
- Last Friday, the US trade deficit for January was reported at a record-high $153 billion.
- Economists speculate that businesses rushed to import goods before Trump’s new tariffs take effect, artificially inflating imports and worsening the deficit.
- Weak US Manufacturing Activity
- Monday’s ISM Manufacturing Index fell from 50.9 to 50.3, signaling sluggish factory activity.
- The Institute for Supply Management (ISM) reported that raw material delivery times have increased, likely due to tariffs disrupting supply chains.
- Prices at US factories jumped to a near three-year high, reflecting higher costs.
Economists Weigh In
James Knightley, Chief International Economist at ING, believes trade uncertainty is a major culprit behind the slowdown:
“Trump’s trade policies aim to boost revenue through tariffs and encourage manufacturing reshoring. However, uncertainty about whether and when tariffs will take effect has left US manufacturers hesitant. As a result, trade activity is likely to remain weak until there is more clarity.”
The US Economy Has Been Flashing Warning Signs
The GDPNow model’s sudden collapse didn’t come out of nowhere. Many key economic indicators had already been flashing red for weeks:
- Consumer Confidence: Plummeted in January, recording its biggest drop in 3.5 years.
- Retail Sales: Saw the steepest decline in nearly two years.
- Household Spending: Fell at its fastest rate since early 2021.
- Stock Market Slump: The Nasdaq has dropped 9% in just 10 days, with big tech stocks hit hardest.
Even retail giants like Walmart have warned of a challenging year ahead. Meanwhile, Citigroup’s US Economic Surprise Index fell into negative territory, hitting its lowest level since September 2023.
And the common thread running through all these issues? Donald Trump’s economic policies.
- Tariffs & Trade Wars → Higher costs, weaker manufacturing.
- Federal Spending Cuts → Less stimulus, fewer government jobs.
- Market Uncertainty → Investors and businesses hesitate to spend.
Investor Reaction: A Flight to Safety
The weakening economy has already triggered major market shifts:
- Investors are rushing into US Treasuries, signaling a lack of confidence in the economy.
- The 2-year Treasury yield fell below 4.00% for the first time since October.
- The 10-year Treasury yield has dropped 60 basis points since mid-January.
As economist Mark Zandi (Moody’s) pointed out:
“The wealthiest 10% of Americans now account for half of all consumer spending. If the stock market weakens further, high-income consumers may pull back—creating a vicious cycle that slows the economy even more.”
Will the Fed Cut Interest Rates Sooner Than Expected?
Economist Phil Suttle admits he expected Trump’s policies to pressure the economy this year but was surprised at how quickly the damage is unfolding:
“If Trump’s aggressive fiscal and trade policies hit US growth harder than anticipated, the Fed may be forced to cut rates as soon as Q2.”
Could the Fed Hit the Panic Button?
For now, the Federal Reserve has paused its rate-cutting plans, given that inflation has slowed only modestly. However, if this “Trumpcession” continues to accelerate, they may have no choice but to intervene sooner than expected.
Final Thoughts: The Road Ahead
- If tariffs remain in place and manufacturing weakness deepens, expect more downward revisions in growth forecasts.
- If stock markets continue to fall, wealthy consumers may cut back spending, worsening the slowdown.
- If economic uncertainty lingers, the Fed could step in with rate cuts, but that alone may not be enough to counteract Trump’s economic policies.
With GDP forecasts crumbling and economic warning signs flashing, one thing is certain—the US economy is heading into turbulent waters.
