Recession Now!

The S&P has already retreated to such an extent that it is negative for the year, in spite of its reprieve on Friday, and is only 1% higher than it was on Election Day when it entered a melt-up Trump rally. The worst performer for stock indices has been the former best performer: The Nasdaq fell almost 4% over the month of February, most of that due to the 3.5% plunge I wrote about on Thursday.

On Thursday, I said the market’s trembling was indicative of much deeper trouble that was starting to shake the surface of the stock market’s former resolve. Two fears that trouble the market, I said, were the sudden rise in new unemployment claims and the latest data on inflation, and I announced I would lay out more on the unemployment situation when the Friday jobs report came out, which one article had said would be forthcoming. Because there is often a second jobs report on Friday, I took that article at its word about a Friday report without checking any calendars. No such report came out, so perhaps they were just mistaken.

The lack of report did a raise a small concern in me for the future in terms of being able to lay out for all my readers what is happening in the economy and where I project it will go. It is not unreasonable to think the Trump wrecking ball may take out the parts of the government that assemble various economic reports and that, in downsizing government, reports will be considered less essential than some other functions. If that happens, we will be entering this time of economic deconstruction without the statistics we need in order to understand it.

Granted, many of the government economic reports are manipulated and faulty, but usually, I can to some degree sift out the manipulations to get a sense of the underlying truth. We may be entering a radio blackout period, like going around the dark side of the moon, where we get no data at all. I don’t know. We’ll see what happens.

With that aside out of the way, there is no further take I can give on the unemployment spike earlier in the week, but I will reiterate that it is awfully early for any unemployment due to Trump government cuts to be showing up, given wait times for unemployment acceptance and then processing times. So, that may all have been the underlying state of the jobs market into which all of the Trump changes will be pouring, more than an indicator of Trump’s policy effects. We’ll start with that as our presumption for now because it was intriguingly matched up by a statistic I did not expect to see:

Apocalypse Now (or recession now)

A stunning release by the Atlanta Fed this week showed that the first quarter of 2025 plunged headlong into recession. The Fed’s GDPNow forecast was updated with a major downturn. (They could be of course and often are, either overshooting or under.)

From The Street:

The Atlanta Fed's GDPNow forecaster, a real-time estimate of current-quarter growth, suggests the world's biggest economy stumbled hard this month as sentiment indicators slump and consumer spending contracted.

There are two ways to look at that, I suppose. One is that Trump was not in power for half the quarter so far, so the slump was what was buried in the Biden GDP reports, which I have been claiming masked the national decline (and which the Fed, being Democrat friendly, was naturally biased against seeing or reporting), was the truth about where Bidenomics landed.

The other would be that Trump was in power for the other half of the time put in for this quarter so far and the GDPNow forecast is, as its name suggests, forward looking, so it is anticipating what will be happening in the remainder of the quarter and may be doing so with the same amount of anti-Trump bias as it has pro-Biden bias.

At any rate, it is a big plunge, but it lines up with where I think the economy actually is already, and anything Trump does will be on top of that in my view. The scale of the sudden change is startling, even if it is partially (or wholely?) because the truth of the economy was not being reported prior to now, or is based on Fed estimates of what Trump tariffs will cause:

The tracker pegs first quarter GDP as having fallen by 1.5%, a massive reduction from its prior estimate of a 2.3% advance.

That is a 3.8 point spread between where the Atlanta Fed last pegged the economy and where it pegs it now after barely more than a month of Trump in office. That looks like this:

Atlanta Fed

Talk about a cliff dive. That is the biggest plunge in the Atlanta Fed’s GDPNow I’ve seen in the years I’ve been watching it. Whether the abrupt correction in their opinion comes due to biases or not, I think that is truly the dire state of the current economy. Maybe it is finally being reported honestly, as I suggested we might see coming now that Trump gets to take the blame, or maybe it is the damage they anticipate will become coming in this quarter from Trump. Either way, it looks like the true state of the economy as I have been thinking it is. I am only surprised to see how quickly the Atlanta Fed reported the shift.

My claim has been, since the Biden years, that we are already in a “stealth recession” where inflation is significantly under-reported and, therefore, not enough inflation is subtracted out of raw GDP data to get “real” GDP, which is supposed to be a true measure of the economy. Because that metric of the economy is measured in dollars, we need to fully factor out inflation in order to see how much the numbers go up or down due to economic factors and how much just due to changes in the value of the dollar we are using as the unit of measure.

The Atlanta Fed finally forecast REAL GDP for the first quarter of 2025 that matches the recession I predicted we would see fully materialize in my “Ten 2025 eEconomic Predictions.” It was the second economic prediction on my list for paying subscribers; and, according to the Atlanta Fed, it is going to come in for a solid landing this quarter. (The first prediction on the list was a stock market crash, which I think we are seeing foreshocks of now in the recent rumblings due to unsteadiness below the surface.

If the Atlanta Fed is right, that will be a stark plunge into recession. It may appear more stark than it would have, had GDP been properly reported all along, but I have no doubt at all that Trump’s changes will plunge us much deeper into that hole, as even Elon Musk stated publicly that the general public will have to anticipate “some pain.” I just think it will be a lot more pain than the doctor is letting on, and that pain will be made worse due to the apparently reckless way in which the transition is being implemented.

When you think of those horrible trade deficits Trump complains about it, you might want to regard them this way: America has huge trade deficits because we have a ton of money and are able to buy a lot more than we make. We buy from all over the world in order to enjoy the greatest variety and abundance possible. Eliminating those trade deficits means eliminating the variety and abundance … at least, until we can gear up enough to make and grow it all ourselves IF we even can make it all ourselves, as some things are just naturally produced better in tropical climates we do not have or in lands with resources we do not have.

Therefore, less trade equals the end of abundance, at least for the next few years, as it takes time to gear up domestic production IF we are even in a place to do so, and likely the arrival of shortages in some goods and services and higher costs for those things we do produce as foreign competition stops holding down prices because foreign competition ceases to exist.

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