Economic Outlook
By: Russ Colbert
Spring 2025 (Vol. 43, No. 1)
We have been hearing about a recession for several years or at least for a while it seems. Some economic forecasters are more certain about having a recession than others. Hopefully the tariff negotiations will get settled over the next three to six months and we can avoid a recession. Since COVID we have seen easy money lifting the economy; that is now coming to an end as the tariff negotiations get under way and cause an increasing amount of uncertainty. Businesses and consumers have been trying to bring into the country as many goods as possible before higher tariffs take effect. There are many businesses moving operations to the U.S. to reduce their taxes. The sooner these countries negotiate their tariff situation with the U.S. the better. They can then move forward with certainty in planning and budgeting for future economic growth and profitability.
Currently, the first quarter GDP numbers will not be published for several more weeks. Looking into the first quarter of 2025, several industries are slowing down due to the tariff uncertainty. The GDP first quarter forecasts so far have been all over the place. Looking at consumer products, we see auto sales have declined so far at a 3% annual rate this year.
Most of the consumer spending on goods and services has been moving at a slow pace. Business investment seems to continue to grow with gains in equipment leading the way. Residential construction so far is flat again due to the lack of housing supply and higher mortgage rates.
The trade deficit soared during the first quarter as businesses were buying ahead of the tariffs taking effect. Inventories accumulation ran at the same slow pace as in the fourth quarter. It looks like it is shaping up to be a very low first quarter GDP number when it comes out.
When we add it all up the lower GDP number is mostly due to do the tariff uncertainty. Hopefully some positive news on the negotiations between the U.S. and other countries will come out soon and give positive direction to the global economies and move the stock market in a positive direction.
It would be helpful as well as there is room for the Federal Reserve to cut short-term interest rates when they meet in May due to the tariff situation and help stabilize stock market volatility. Although they will probably hold off until June. We also think it is important for the Fed to move gradually. One or two rate cuts would not be excessive. Our view on inflation hasn’t changed and we still expect inflation to average around 2.5 % or a little higher over the next 10 years.
In our opinion, we feel that President Trump and the White House will be successful in negotiations with other countries on the tariffs. It will probably take three to six months of negotiations to finalize many contracts with these countries. As soon as progress is made and is released to the public the economy and stock market should start to improve.
If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.
Russ Colbert
Senior Portfolio Manager
1-888-878-0001
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.