from Birch Gold Group:
The U.S. economy is going through an upheaval – and investors are rattled. After weeks of nearly unprecedented volatility, today we settle down to ask whether this is just a transitory episode? Or an early indicator of further unpleasant developments ahead?
There’s an old curse that supposedly comes from an Eastern country (it could have actually come from a comedy writer, for all I know). The curse is:
“May you live in interesting times.”
As Lenin put it, “There are decades where nothing happens, and there are weeks where decades happen.” Under that philosophy, this has been at least a six-decade week. Things sure are “interesting” right now, and are likely to become even more so…
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Now, there’s good news, and there’s bad news. Because I’m a guy who prefers to take the medicine all at once to get it over with, we’re going to start with…
The bad news on the U.S. economy
The U.S. economy is going through an upheaval.
Even Trump, the eternal optimist about the strength of America, said something that set off alarm bells.
Here’s a summary:
President Donald Trump declined to explicitly rule out a full-blown recession for the U.S. economy this year… the country will see a “period of transition” as his policies take effect.
“I hate to predict things like that,” he said of a recession. “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… it takes a little time, but I think it should be great for us.”
Now, I firmly believe that, like Trump said, his economic policies will bring back the U.S. economy stronger. It will take time, though, and that “period of transition” will involve ups and downs – volatility and uncertainty – in the economy.
Take, for example, the mini panic after Canada announced reciprocal tariffs on energy because of Trump’s threatened tariffs against Canada. Fortunately, things are looking a bit different now according to Jennifer Cowan with The Epoch Times who writes,
President Donald Trump will not double tariffs on Canadian steel and aluminum after Ontario suspended its 25 percent tax on energy exports in response to U.S. tariffs, White House officials say.
“After President Trump threatened to use his executive powers to retaliate with a colossal 50 percent tariff against Canada, Ontario Premier Doug Ford spoke with Secretary [Howard] Lutnick to convey that he is backing down on implementing a 25 percent charge on electricity exports to the United States,” White House spokesman Kush Desai said on March 11.
Fortunately, a tariff war was averted – in this case.
What does a period of economic transition look like?
People stressing about reciprocal tariffs, especially on energy, would be bad enough, but there’s more news. Cortenay Brown with Axios writes:
Sentiment indicators show that economic uncertainty, tariff threats and federal government cutbacks are weighing on consumer and business spending plans.
Some companies most exposed to discretionary spending say it isn’t just talk: Weak sentiment is carrying over into weaker buying.
Some companies are seeing lower sales – which could indicate a slowing in the U.S. economy. The reason analysts and economists are so obsessed with so-called “consumer spending” is simple: consumer spending is TWO THIRDS of economic activity in the U.S.
When we talk about GDP and so on, we’re mostly talking about everyday American families going shopping. For gas and groceries (considered nondiscretionary, by the way), and for mansions and Maseratis – it’s all “consumer spending.” Discretionary spending, for households, is usually things we don’t need right away – a bigger TV, or a new dining room suite.
A slowdown in consumer spending is a major recessionary red flag. When households cut back, retailers make fewer sales. So they order less from manufacturers. A deep cutback in spending leads to layoffs among retailers and manufacturers alike – along with supporting services like warehousing, transportation, financial services…
Because, you must understand, that one person’s spending is another person’s income.
