Ten indicators explain what’s going on with America’s economy
A look at the impact of Trumponomics, as revealed by data
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POLLING SHOWS that Americans prioritise jobs and the economy above all other issues. Republicans eagerly seized upon that in the run-up to last year’s election, blaming Democrats for the post-pandemic jump in prices. Now it is Democrats who are pointing to signs that Donald Trump’s policies are hurting growth. Amid such partisan noise it can be difficult to separate fact from rhetoric. Our charts below look at ten economic indicators—from inflation and the stockmarket to lesser-known indices—for a detailed check-up on America’s economy. The diagnosis is not yet dire, but there is reason for concern.
The most obvious warning sign, and the one that has also made the most headlines, is the sharp decline in American stockmarkets over the past few weeks. The S&P 500 index of large American firms has fallen below where it was before Mr Trump’s victory in November. This reversal has wiped out the more than $5trn of gains in the post-election rally when investors were bullish about Mr Trump. The proximate cause of the swing to bearish sentiment is the president’s crusade for higher tariffs and the worry that these will weigh on America’s economy.
Still, the fall in stocks so far represents a correction rather than a nightmare: by historical standards American stocks remain expensive. Indeed, equity valuations in America have long been higher than in most other countries. Part of what has happened is thus a rebalancing, with investors shifting some of their money into other stockmarkets. If American equity prices stabilise from here, consequences for the economy should be relatively mild. If, however, the sell-off gets much steeper, that would both be a reflection of weakness and a drag in itself.
More than any other economic indicator, Mr Trump owes his election victory to this one: inflation. On the campaign trail he vowed that he would conquer inflation, which had soared to its highest level in roughly four decades under Joe Biden. But so far Mr Trump has discovered that inflation is not so easily vanquished. The Federal Reserve’s preferred measure is the personal-consumption expenditures price index: it is on track to rise about 2.5% in February, above the Fed’s target of 2%. That is much lower than a few years ago, but, worryingly, it seems like it may be getting stuck.
Inflation is, to a large extent, beyond the White House’s direct control. Mr Biden’s bad luck was the extreme supply-chain disruptions caused by the covid pandemic (though his big stimulus spending did not help). Mr Trump, for his part, can do little to reduce the price of eggs, driven up by bird flu. The concern is that he may make inflation worse if he gets his way with higher tariffs on just about everything that America imports.
At this point the potential damage from tariffs is showing through most clearly in surveys about the economy rather than in hard data. A closely watched index of consumer sentiment, published by the University of Michigan, dipped to a preliminary reading of 57.9 in March, its lowest level since November 2022. Readings that low have often signalled recessions. And inflation looms especially large as a concern: long-term inflation expectations are running at their highest in more than three decades.
Surveys are far from perfect indicators. Responses to the Michigan questions are heavily coloured by partisan affiliations, with Democrats now much gloomier than Republicans. But other gauges paint a similar picture. An index of consumer sentiment published by the Conference Board, a business-research group, dropped by seven points in February—its sharpest fall in more than three years.
As bleak as sentiment currently is, a more fundamental metric is how much people are actually earning. Here, the figures are more upbeat, for now. Thanks to the deceleration in inflation since June 2022, average wages are, in real terms, near to their highest in five years. That trend began under Mr Biden and has continued so far under Mr Trump.
So long as real wages remain healthy, consumer spending should remain robust. And so long as consumer spending remains robust, overall growth should remain resilient (consumption accounts for about two-thirds of American GDP). There was a dip in retail sales in January, but it would be incorrect to blame that on Mr Trump: he was only in office for the final part of the month and the weather was unusually frigid. The question for the coming months is whether Mr Trump’s push for tariffs undercuts the consumer economy. Higher import prices would reduce people’s real spending power.
Another pillar of the economy that looks solid at the moment is the job market. With an unemployment rate of 4.1% in February, workers are basically back to where they were before the onset of covid. When the Fed started jacking up interest rates in 2022, many analysts and investors thought that monetary tightening would lead to massive lay-offs. Instead, the economy had several buffers: consumers had accumulated ample savings during the pandemic; companies had locked in low financing rates; and there was a boom in AI-related spending.
All of these buffers are, however, starting to weaken. Consumers have largely used up their excess savings. More companies need to refinance their debts, at much higher rates. And the AI frenzy is also wearing off. On top of all that, Mr Trump’s policies could add to the strains. The so-called Department of Government Efficiency (DOGE), run by Elon Musk, is trying to slash the size of the civil service. A high-frequency indicator—weekly claims for unemployment issuance—has been basically stable so far, but it is one to watch as pressure builds.
One thing is certain so far about Trumponomics: no one is sure where it is heading, with radically different possibilities. Detractors point to all the disruption from tariffs. Supporters buy into Mr Trump’s pledge that he will bring about a new “golden age” for the American economy, fuelled by tax cuts and deregulation. One way of measuring all of this uncertainty is the Economic Policy Uncertainty index, devised by three American economists. The index tracks media coverage, tax policies and disagreements among economic forecasters. It spiked at the height of covid before falling below its long-term average under Mr Biden. Now it is once again soaring. Uncertainty can be a problem in and of itself, acting as an impediment for both businesses and consumers who face tough decisions. It is hard to commit to a large purchase or investment if the next few months, let alone the next few years, are so hard to predict.
With America’s debt load ballooning, Mr Trump has promised that he will bring down federal spending. He created DOGE with the supposed intention of identifying fraud and waste, and eliminating as much as $2trn a year from the government’s budget. That was always a far-fetched ambition: cuts of that size would exceed the government’s entire discretionary spending. In that sense, it is good to see that Mr Trump is woefully behind on his planned cuts. As measured by cash outflows from the Treasury, spending is running ahead of previous years. Unfortunately, America’s fiscal trajectory remains unsustainable, and DOGE does not appear to be a silver bullet.
For all of the drama and debate surrounding Mr Trump’s policies, it is important to remember that the economy is affected by much more than just the programme of the Oval Office’s occupant. The property market is a crucial determinant of the business cycle, and it responds more to borrowing rates than to any presidential policy. High interest rates are now posing a major headwind. The average interest rate for a 30-year fixed-rate mortgage was 6.63% in March, well above the low rates that had come to seem so normal in the decade before covid. Home sales have steadily drifted lower since the covid peaks and, with mortgages staying so expensive, there is probably little relief on the horizon. That will hurt construction activity.
Our final measure concerns the dollar. Both Mr Trump and J.D. Vance, his vice-president, have argued for a weaker currency, saying that the greenback’s strength is a problem for American industry (because, they say, companies will struggle to sell their products abroad). In a narrow sense, they have scored an early victory in this domain: the dollar has lost ground against most other major currencies since Mr Trump took office. The trouble is that this weakness stems mainly from his policies, especially his ultra-aggressive trade tactics. As investors question America’s stability, the risk is that they reduce their appetite for American assets and, by extension, the dollar. A weaker dollar could end up adding to inflation pressures by driving up the cost of imported goods.
It is possible to imagine a much more positive outcome for Trumponomics. Just a couple of months ago investors were convinced that he would energise America’s business environment by cutting red tape and making it a much more attractive destination for foreign capital. But the story of his first two months in office is how much his agenda has been consumed by his chaotic tariffs and his war on the civil service. The dangers of his approach are starting to percolate into the economic data.■