During the election campaign, Donald Trump promised that he would lead to a boom in the US economy. He claimed that his policies would help the middle class and the job market, ARD recalls. Only a few weeks after taking office, however, economists are warning that the opposite is coming. There is already talk of a "Trumpcession" - a recession caused by Trump's policies.
Even the US president himself no longer denies that he could plunge the country into recession. "We are in a period of change, because what we are doing is huge. We are bringing prosperity back to America," he said. "It takes time."
According to the forecast model of the Atlanta Federal Reserve (FED Atlanta), the US will record negative growth of minus 2.8% in the first quarter of 2025, in other words - a drastic collapse in gross domestic product. This is a serious correction from the forecast in February, when growth of 2.3% was expected.
The labor market feels the changes
The US labor market is also showing negative trends. In February, only 151,000 new jobs were created, and in January - 125,000. This is a sharp drop compared to 323,000 new jobs, which were created in December 2024. At the same time, unemployment rose slightly to 4.1%. "The labor market has been slowing for some time", says Eckhard Schulte of asset management company MainSky Asset. "It is not yet really critical, but the slowdown is very clearly intensifying."
Also worrying are the planned layoffs - 172,017 jobs will be vacant. This is an increase of 245 percent compared to the previous month and the highest number since July 2020, writes ARD. The increase is largely due to the work of the Department of Government Efficiency (DOGE), headed by Elon Musk. The planned savings measures could put even more strain on the labor market, since many jobs depend directly or indirectly on government funding.
Reduced consumption and growing uncertainty
Consumer sentiment in the US has deteriorated significantly since the beginning of the year. Consumer confidence, according to the Conference Board's barometer, fell seven points to 98.3. This is the lowest level since June 2024, ARD explains. Private consumption accounts for more than two-thirds of the US economy. That is why the risk of a recession in the US increases especially if consumer spending decreases sharply.
Since taking office, Trump has been shaking up the market with his unpredictable statements and decisions. Critics accuse him of constantly imposing and canceling tariffs, for example, leading to uncertainty and investors' reluctance to invest. It is already clear that consumers and companies are delaying their investments.
The growing uncertainty can also be seen in market indicators, ARD notes. The Global Economic Policy Uncertainty Index, which analyzes media coverage by keyword, is at its highest level since the pandemic, even reaching the peak values since the financial crisis of 2008-2009.
Rising inflation instead of low prices
Part of the reason why Trump won the election was his promises to reduce the prices of basic goods. But many Americans no longer believe that. Inflation in February reached its highest new since May 2023, jumping from 5.2 to 6 percent. Although Trump is trying to control it by reducing oil prices, economists believe that core inflation is still too high. The latest inflation figures do not include the effects of the tariffs.
According to economist Harm Bandholz of the University of Kiel, prices will rise and in the long term, the imposition of tariffs will not bring benefits to the US economy. In the medium term, the competitiveness of the US economy may also be at risk, the expert told ARD. Restricting market access will reduce the incentives for US companies to innovate. "This will make them retreat in some ways. We saw the same thing in the US car industry in the 1970s and 1980s, when the US car market was protected by tariffs."
Slow growth, but not a recession?
However, leading economists believe that the US economy is stable. Although tariffs and a tight labor market could put pressure on growth, a recession is unlikely in the short term, Bandholz said. The economist told ARD that the US economy is still growing relatively steadily.
Current negative GDP growth forecasts, such as the one from the Atlanta Fed, may be distorted, as companies are pushing a large part of their imports in these weeks to avoid tariffs. As a result, the difference between imports and exports is negative in the short term, which in turn reduces growth forecasts significantly. According to Eckhard Schulte, there is no reason to worry about a recession yet, although US growth could slow down significantly due to Donald Trump's policies.
Author: Lukas Wieler ARD