What's Going On With the Economy?

On Sunday, President Donald Trump said something surprising on Fox News. He said he wasn't going to rule out a recession.
Are you expecting a recession this year? I hate to predict things like that. There is a period of transition because what we're doing is very big.
We're bringing wealth back to America. That's a big thing.
And there are always periods of—it takes a little time. It takes a little time.
His statement marked a shift in the message coming from the White House. Trump has promised a sweeping transformation of the American economy, one that makes America affordable again.
But now, the messaging is that implementing that vision could cause some short-term pain. Here's Treasury Secretary Scott Besant on CNBC.
The market and the economy have just become hooked. We've become addicted to this government spending, then there's going to be a detox period.

Already, the economy is seeing some signs that that pain is here. Consumer confidence is down nearly 10% from last month.
The Dow plunging nearly 750 points, the S&P 500, NASDAQ both falling sharply as well amid fears of a slowing economy and stubborn inflation. The new 25% tariffs on Canada and Mexico and additional tariffs on China risk raising prices for American households on everything.
We're starting to see some cracks. We're starting to see companies talk about, you know, declining demand for their products and services.
So we're starting to see some sort of slippage, I think, in the economy.

Maybe in the long run, it'll prove to be very beneficial to the economy.

But I think what it's done at the outset is inject a lot of uncertainty into it.

Welcome to The Journal, our show about money, business and power.

I'm Jessica Mendoza.

It's Wednesday, March 12th.

Coming up on the show, what's going on time and all the money you spent on your taxes. This is my bill? Now Business Taxes is a TurboTax small business expert who does your taxes for you and offers year-round advice at no additional cost so you can keep more money in your business.
Now this is taxes. Intuit TurboTax.
Get an expert now on TurboTax.com slash business. Only available with TurboTax Live full service.
When Trump returned to the White House in January, the economy was relatively steady. Here's Deputy Economics Editor Ashby Jones.
What a lot of economists have seen is that Trump inherited a pretty solid economy, not perfect by any great shakes, but the job market was steady. The inflation numbers are not exactly where they need to be, but they have come down to a great degree from their 2022 highs.
And, you know, things are looking fairly solid. In the seven weeks since he took office, Trump has acted swiftly to reshape the economy in his vision.
There's been a lot. I mean, he's thrown a fire hose at the economy, cuts to the federal government, tariffs, and then a stricter immigration policy.
You know, those have been the three main legs of the stool, right? I mean, this is what Trump said he was going to be doing in his second term. And this is exactly what he's doing.
He's coming out of the gate really hard. And he's putting these policies into action.
Trump's firehose approach has involved massive layoffs in the federal government, an immigration crackdown, and a lot of back and forth on tariffs on longtime allies of the U.S. So far, the most significant of those policies are tariffs.
At the beginning of February, Trump announced 25 percent tariffs on Canada and Mexico. The president posted on X just a couple hours ago that he's implemented the 25 percent tariff on imports from Mexico and Canada.
But then paused them for a month. President Trump now pumping the brakes on a trade war, pausing tariffs on both Canada and Mexico for at least 30 days.
That month went by, and then the tariffs went into effect for about two days. President Donald Trump says time has run out.
And so he is now doubling down on his promise to impose steep tariffs on exports from Canada, Mexico, and China. One day later, he temporarily exempted automakers from those tariffs, and then paused all the tariffs again for another month.
There are tariffs which are already in effect, like on Chinese goods. Trump first imposed 10% tariffs on them.
And then a few weeks later, he doubled those to 20%. U.S.
President Donald Trump said he would impose additional, additional 10% tariffs on imports from the world's second largest economy. The administration also placed 25% tariffs on steel and aluminum, no matter where they come from.
In response, the U.S. has been hit with retaliatory tariffs.
What's happened is you've just seen a lot of uncertainty. People sort of gearing up, bracing for these tariffs, and then they get pulled back and then they get put back on and they get pulled back off.
And so there's just a lot of uncertainty. And it's sort of, you know, you do it once, people will go along with you.
You do it twice. Then people start to wonder whether or not you're serious about this whole tariff business to begin with.
And they really start to wonder what's going on here. So I think that injection, again, of uncertainty into the economy has been as damaging as anything.
You've used the word uncertainty, you know, in coverage, the word whiplash comes up as well. So does it feel like at this moment that what's affecting the economy is the way the administration is rolling this out, not necessarily the tariffs themselves for now? Yeah, I think that's right.
And you're right. I've noticed the word whiplash and whipsawed in a lot of our stories.
Those two verbs are getting a lot of exercise here in Wall Street Journal copy. But I think I think they're very accurate and they're in our stories for a reason.
But Ashby says these tariffs themselves are making economists worry about future inflation. The inflation numbers, I mean, what the economists talk about is tariffs are going to be inflationary.
They're going to drive up prices and they're going to make life harder, actually, for American companies that import a lot of goods to make their own products. So it's going to have a general inflationary effect.
For now, inflation has not been affected. In February, it was at 2.8 percent.
And Ashby says it could take a while for inflation to change based on what happens with the tariffs. The biggest impact so far has been on the stock market.
Both the Nasdaq and S&P 500 have dropped since Trump took office, by about 10% and 6% respectively. An index that tracks fear and volatility on Wall Street is up, and the dollar's value is down.
Right now, unemployment remains low. But Ashby is watching Trump's continued cuts to the federal government, which is the largest employer in the country.
And what we're trying to do is reduce government. We have too many people.
We have office space. I think it is going to have ripple effects throughout the economy in a number of ways.
And I don't think we're starting to see this quite yet. But I do think, you know, it could over time sort of blip up unemployment if the people who are getting laid off don't have jobs lined up.
So if you're talking about consumer spending, well, now you're adding a whole big chunk of the workforce that are probably not going to be doing as much spending. There are a few early signs that consumers are already spending less.
This week, several big airlines predicted lower revenue in the coming quarter

because they expect people to pull back on travel.

We had, you know, these earnings from Kohl's,

which show that just overall maybe consumer spending on household goods and the like is down a little bit.

People are starting to pinch their pennies a little bit.

Do we have any historical context for what shrinking the government does to the economy? I don't think so, at least not with the federal government, with, you know, very targeted cuts to the federal government. We really slimmed down the size of the federal government in the 1990s.
This was sort of a Clinton-era policy back then. But the economy was so good otherwise that those cuts kind of got absorbed and kind of like just lost in the fold here.
So I don't think there is any sort of historical parallel to this, at least not one that would kind of give us any sort of, you know, guidance or signposts on where we're headed at this point. The big data that we pay attention to on jobs, on inflation, on GDP, these are lagging indicators, what they call lagging indicators, right? So, you know, they follow the actual phenomenon by several months.
And we're only several weeks into the Trump administration, so we're really not going to know. Which is wild, actually, to think about.
Yeah, it feels like a bit longer than that. But I think the main one economists look to is sort of the tip of the spear in this is like consumer confidence and consumer spending, right? I mean, what are consumers doing? Because that's really, you know, a big part of the ball game here is our consumers, you know, pulling out their credit cards.
Are they going ahead with the home renovation that they had planned? Are they going ahead with the big summer vacation that they thought they might take with their families? And, you know, that kind of behavior stimulates the economy, right? And keeps the economy sort of humming. And we've had a pretty good economy for several years now coming out of COVID.
And now, only now, we're starting to

see some cracks in that. Coming up, how the White short-term pain is expected in the economy.
We are in a period of economic transition. We are in a period of transition from the mess that was created under Joe Biden in the previous administration.
I talked to our colleague Brian Schwartz. He's a White House reporter that focuses on economic policy.
What did you think when you heard those comments? Well, I think they've come to the reality that this is not going to be as easy as they once thought.

The idea of throwing on tariffs onto a variety of different countries, the goods coming from those countries to be precise, is not going to just be an automatic boom to the economy. Their theory, of course, in the Trump administration is that somehow these are going to be revenue builders, that you're going to be able to pay for critical policies, such as tax cuts and you name it.
But it's clear to me that the administration has figured out that in the short term, and I think they're being as clear as politically they can be, that this may not be as simple as they thought and that there could be some bumps in the road in the economy. Does it seem like Trump believes that some bumps are worth it to make his vision happen? If you ask the president, he's convinced, again, that this is making an impact.
He's convinced that there are companies who are saying to him in private or saying some things in public, like Apple, that they're going to be doing more business here in the United States. Apple has announced hundreds of billions of dollars in new investments into the U.S., and that was after Tim Cook met with the president recently at the White House.
Some business leaders are less certain about the administration's moves. On Monday, Trump met with some of them, and he did face some pushback to his stop-and-start approach to trade.
These were a bunch of tech CEOs from Qualcomm, HP, you name it. Michael Dell has put out on social media.
He was there. One was that the CEOs said, from what we were told, hey, Mr.
President, these tariffs that you're proposing and in some cases moving ahead with are really going to hurt the tech space because we make our various parts for goods and services that are made in different countries. You name it, China particularly.
That's a big one. But at the same time, according to the president, these people didn't necessarily go as far as saying, please don't do this.
It was more of, hey, we have some issues with this. We are, according to the president, we're going to build more here.
We're going to invest more into the United States. And again, that's a critical difference than in the past administration, because not only are there people not around him in the administration are willing to take him on anymore, there aren't that many CEOs who are going into that White House and saying,

you can't do this, you know, pull the plug, don't go ahead.

They're trying to kind of meet him in the middle with this idea that they're moving

ahead with some sort of product creation in the United States.

Brian, why is there so much unpredictability from the White House? Like, why is there so much whiplash when it comes to these policies? My view on this is that it is, in part, kind of a scattershot economic policy way of doing business. And what I mean by that is, if the president wakes up one morning and says, I want to do tariffs on Canada, right, or Mexico, then this group of advisors is going to move with him to do that.
And sometimes we've heard that amidst this, advisors are kind of not always in the loop on every single thing that's going on in that White House. There are some warnings before announcements are made, don't get me wrong, but then there's some things where there isn't really a unified message all the time, at least in my view, on the really kind of precarious steps on moving ahead with tariffs in particular.
So it sounds a bit chaotic, but it seems like no one's really saying no to the president. Yes, that's right.
The biggest difference from the Trump second go around and Trump's first term, particularly with trade, is there is no one around anymore to tell him, Mr. President, this may not be such a great idea.
Here's why. Yes, they talk to him about the impact a set of tariffs could have on the markets.

But no one is saying, at least from our reporting, don't do this. And I think that's really kind of an important point, right? Because if there's no one around as a counter voice to what the president is saying, then all of these guys have to follow everything he's doing.
And so anyone in the Republican Party who privately

wants this to stop, it's unlikely any of this is really going to change course at this time. Is there anything that could change Trump's approach here? By which I mean, is there a future that we could look at that's a little bit more predictable in the way these new policies are being rolled out?

I'm not sure.

I mean, it's only a small group of people

who could convince him to kind of start having more of a straight line in his decisions. That includes Vice President J.D.
Vance, Chief of Staff Susie Wiles, his family, and friends such as Howard Lutnick. These are the only people that will be able to kind of make an inroad with him and say, Mr.
President, it's maybe time to take a different tactic on how we're going to roll out these tariffs. But I don't think there's anybody in his orbit at the moment who's willing to do that.
So until that happens, if that happens, we should all be braced for a little bit more of this uncertainty. Yes.
I mean, there's so much to keep your eye out for. That's our colleague Ashby Jones again.
You need like one of those big video screens that has like, you know, 10 TVs that are each showing a different kind of economic program or something like that. I am most interested at the moment in sort of this spending consumer sentiment piece of it, because I think that's really something that could portend, you know, broader trouble ahead.
And of course, that's tied in with the stock market. If stock markets start to drop, people get a little bit worried about their own pocketbooks.
And all of a sudden, there's a vibe in the air, right? And the vibe is, things are not doing well, let's everybody hold on to our money and not spend. And that can then lead to recessionary forces or pressures, because people hold on to their money, businesses suffer, and then they hold on to their money and you get sort of a spiral.

So I think we're just going to have to wait and see how stocks do over the next couple of weeks before we, you know, come to any judgment on this.

Before we go, we wanted to tell you that we're thinking about hosting a live journal event.

Thank you. Before we go, we wanted to tell you that we're thinking about hosting a live journal event.

Tell us what you want to see by taking our survey.

There's a link in our show notes.

And for updates on our plans, please leave us your email address.

That's all for today, Wednesday, March 12th. The Journal is a co-production of Spotify and The Wall Street Journal.

Additional reporting in this episode from Gavin Bade, Josh Dossey, Justin Lehart, Paul Kiernan, Conrad Puzier, and David Oberti.

Thanks for listening. See you tomorrow.