The US economy showed signs of weakness in the first half of 2024, with GDP growth slowing to 1.2 percent annually. The slowdown is attributed to uncertainty created by Trump’s tariff threats, mass deportation, and government cutbacks.
Job growth has also been sluggish, averaging 38,000 new jobs per month since April, which is lower than expected. This slower job growth is partly due to the Trump administration’s immigration policy, which reduced the flow of immigrant workers into the labor force. With baby boomers retiring in large numbers, native-born workers are entering the workforce at a slow rate.
As a result, total wage income is growing at 0.4 percent annually, leading to weaker consumption growth. Nominal wage growth has also slowed down, with the leisure and hospitality sector experiencing a 2.5 percent annual rate of wage growth.
Low hire and quit rates, as well as rising unemployment rates for Black and young workers, suggest that the labor market is weakening further. This could lead to slower nominal wage growth, causing real wage growth to slow to a trickle.
Investment growth has been modest, with structure investment being sharply negative due to the decline in factory construction and hotel investments. Residential construction has also fallen in both of the last two quarters.
The government sector shrank slightly due to cutbacks in federal spending, while trade is expected to have a minimal impact on economic growth. The overall picture is one of weak economic growth, with unemployment remaining low but real wage growth and consumption growth being severely impacted.
However, there is a positive story for 2025 and 2026: the stock market bubble bursting. If the AI-driven stock bubble bursts, it could lead to a recession. The collapse of such a bubble would eliminate $10 trillion in stock wealth, causing significant economic disruption and potentially leading to a decline in consumption by as much as $300-$400 billion.
Source: https://cepr.net/publications/quick-thoughts-on-the-economy