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Business Insider
19 hours ago
- Business
- Business Insider
3 signs the economy is in worse shape than we thought
The US economy is facing some serious headwinds. A weaker labor market, a slower baseline rate of economic activity at the start of 2025, and a pull-back from the mighty American consumer could all portend a bigger slowdown later this year. There hasn't been a recession since the two-month pandemic downturn in 2020. The National Bureau of Economic Research makes the official call, saying its "definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months." Below are three signs that the economy isn't as strong as it once was. Economic growth last quarter was worse than we thought The Bureau of Economic Analysis has released three estimates of the rate of economic growth for the first quarter of the year. They do this because, as they get additional information, they can get a better picture of the economy's growth. Back in April, the BEA's initial estimate of the real gross domestic product's rate of change during the first quarter of the year was negative, the first decline since 2022. Imports, which subtract from growth, rose as businesses responded to President Donald Trump's tariffs. However, this week's third GDP estimate was worse than expected and the previous two estimates. The third estimate showed real GDP dropped at an annualized rate of 0.5% compared to a 0.2% expected drop and the 0.3% drop reported in the initial advance estimate on April 30. Consumer spending, which is crucial for GDP growth, cooled in the first quarter. It rose 0.5% compared to 4% in the last quarter of 2024. It was a main reason real GDP was revised down — real consumer spending was estimated at 1.8% in the advance release — and it's pretty ominous since consumers have generally been keeping the economy afloat the last couple of years. One or two negative quarters of economic growth don't necessarily mean a recession; there are a lot of different measures that go into making that call. Mark Hamrick, senior economic analyst for Bankrate, told Business Insider the chance of a US recession is "modestly elevated, but far from certain." May saw a rare drop in consumer spending The American consumer may finally be reaching their limit. Real spending has weakened, dropping 0.3% in May from April, according to a BEA report out Friday morning. All told, spending growth has been largely flat since late last year. While the fall in spending might not seem like a lot, Justin Wolfers, a professor of public policy and economics at the University of Michigan, wrote on X that this is a rare occurrence. He added that it happened during COVID and the financial crisis. "This may be a bit short of a seismic change, but it completely changes the narrative on the health of the consumer and reconciles the head-scratching disparity between plunging confidence and a swaggering consumer unencumbered by tariffs or a weakening labor market," wrote Wells Fargo economists Tim Quinlan and Shannon Grein. Spending was stronger in April and March. Based on other data and BI interviews with consumers, people ended up buying cars, laptops, and other items in response to new tariff policies. That binge may be coming to an end. Spending on motor vehicles and parts in particular fell 6.0% in May, providing a large part of the drop in overall consumer activity. Economists don't see spending getting better. "With employment growth slowing, income gains moderating, and the inflationary effects of tariffs building, households are likely to become more cautious with their spending over the summer and into the fall," said Lydia Boussour, EY-Parthenon's senior economist. The job market is getting worse "The gradual deterioration of US labor markets continues," economist Guy Berger wrote in his Substack on Thursday. Continued claims for unemployment benefits, which measure how many people receiving those benefits have renewed them in the previous week, have been steadily climbing for the last few months, reaching almost 2 million for the week ending June 14 and hitting their highest level since November 2021, when the economy was still recovering from the pandemic shock. The rise shows people could be having a harder time finding a new job. There were 7.2 million unemployed in the US in May, with 1.5 million unemployed for at least 27 weeks. There was one job opening for every unemployed person in April, down from two job openings for each in 2022 during the Great Resignation. Still, initial claims, which show people who are newly applying for unemployment benefits and have been holding mostly steady this year, suggest many workers aren't losing their jobs — layoffs and discharges have been low. "We're seeing this deterioration in continuing claims without a corresponding worsening in initial claims," Berger wrote. Other recent data show job seekers have less bargaining power again. People are less likely to job-hop, partly because openings have cooled. Plus, wage growth isn't as great as a few years ago for job switchers. It can be hard to even find an opening that matches their interests, especially if they are looking for a white-collar job, or the benefits they want, like a remote job. Berger expects that the rise in continuing claims could likely lead to an increase in the headline unemployment rate in the coming jobs report. Unemployment held steady at 4.2% from March to May.
CNBC
2 days ago
- Business
- CNBC
'Revenge saving' picks up as consumers brace for economic uncertainty
Americans are tightening their belts, as concerns about tariffs, inflation, job security and market volatility have prompted many consumers to pare back their spending and increase their savings, financial experts say. The U.S. personal saving rate — the percentage of disposable income that U.S. households save, after they pay taxes and spend money — has risen sharply this year, reaching 4.5% in May, according to Bureau of Economic Analysis data released Friday. That is slightly down from 4.9% in April, but up significantly from 3.5% in December. Some consumers may be changing their financial habits from so-called "revenge spending" — the trend of splurging after the pandemic — to "revenge saving," as they focus more on building savings and spending less. "No buy" challenges are going viral on social media platforms like TikTok and Reddit, as consumers vow to limit their discretionary spending, cut back on subscriptions and travel, and rebuild their savings. A recent Vanguard survey found 71% of Americans polled plan to shift their savings approach this summer to prioritize emergency savings and flexibility. Financial advisors typically recommend consumers aim to set aside three to six months' worth of living expenses as a cash cushion. But you might benefit from having more in some circumstances; for example, if you're a one-income household or your pay is variable, experts say. Having ample cash reserves improves overall financial wellbeing, according to Vanguard researchers. "American workers are spending, on average, nearly seven hours each and every week thinking about their finances," said Dina Caggiula, head of participant experience at Vanguard. "But if you have sufficient emergency savings, we can cut that number nearly in half." Several factors are prompting consumers to be cautious and cut back, including fluid tariff negotiations, the prospect of higher inflation and interest rates lingering at higher levels longer than some expected, financial advisors and researchers say. Many Americans are also concerned about geopolitics and social unrest. Some of the "revenge savings" trend is consumers wanting to amass cash to help shield themselves from unexpected cost increases in the future. "This may be a lot of just defensive behavior or anticipatory behavior. I may not need the money today, but I'm going to get access to that money in case I need it a few months down the road," said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. Workers are also increasing the share of pay they contribute to retirement savings plans, which has boosted the 401(k) savings rate to a record high. A recent report from Fidelity, the nation's largest 401(k) provider, found 401(k) savings rates hit a record high in the first quarter of 2025, with a contribution rate of 9.5%. When you add matching contributions from employers, the savings rate for those plans rises to 14.3%, edging closer to Fidelity's recommended retirement savings rate of 15% a year. Meanwhile, another report from Vanguard shows the average savings rate for employee deferrals was 7.7% in 2024, matching record-high levels from the previous year. More retirement plans are making it easier for workers to enroll and contribute through automatic enrollment and automatic escalation features. "If you get money automatically out of people's paychecks, kind of the same way taxes come out of people's paychecks, if we can do that, most people end up saving a very high percentage of their income," said Jeff Schneble, CEO of Human Interest, a New York-based firm that helps small companies set up 401(k) services.
Yahoo
2 days ago
- Business
- Yahoo
The Fed's Preferred Inflation Gauge Was Higher Than Expected In May
"Core" PCE inflation rose 2.7% over the year in May, higher than the 2.6% anticipated by forecasters. Officials at the Federal Reserve use core PCE prices to judge whether inflation is running at the 2% annual rate they target. Fed officials have debated lowering the central bank's key interest rate, which affects borrowing costs. They have been reluctant to do so this year because of concerns that tariffs will push up rose faster in May than forecasters had anticipated, and consumers unexpectedly lost income and pulled back on spending. According to a report on Personal Consumption Expenditures by the Bureau of Economic Analysis Friday, "core" consumer prices, which exclude volatile prices for food and energy, rose 2.7% over the year. That is up from an upwardly revised 2.6% annual increase in April and higher than forecasters had expected, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. The uptick in core PCE inflation is especially significant because it's Federal Reserve officials' preferred inflation benchmark. The central bank sets the nation's monetary policy with the goal of keeping inflation running at 2% a year. Fed policymakers are currently debating whether inflation is tame enough to start cutting the central bank's influential federal funds rate, which affects borrowing costs on all kinds of loans. PCE prices rose 2.3% over the year when factoring in food and gas, an acceleration from an upwardly revised 2.2% annual increase in April and in line with forecaster expectations. Falling gas prices helped keep PCE inflation relatively cool in May, similar to the CPI inflation measure, a separate report released earlier in the month. Also of significance for the Fed, consumers pulled back on spending in May as their incomes fell. Consumer spending fell 0.1% month-over-month after rising 0.2% in April. Forecasters had expected spending to rise 0.1%.The spending pullback could be related to President Donald Trump's tariff campaign. Many consumers had bought imported products in March and April in anticipation that tariffs would drive up prices, and subsequently didn't need to buy those things in May, at least one economist said. People have also gotten nervous about the state of the economy, according to consumer surveys, and that may be making some people more cautious about spending. "What's causing the consumer to slow down? It is likely a range of forces—a pullback from very strong spending and tariff front-running, some worries about the economy due to tariffs and slower population growth all are coming to a head," Ali Jaffery, an economist at CIBC, wrote in a commentary. Personal income fell 0.4% over the month, the first decrease since September 2021. However, the decline in personal income says more about the quirks of Social Security payments than it does about the economy's trajectory: the drop was related to the Social Security Fairness Act, the bureau said. The Biden-era legislation boosted benefits for some public servants when it went into effect earlier in the year, and gave some people one-time retroactive payments. Read the original article on Investopedia
Straits Times
2 days ago
- Business
- Straits Times
US consumer spending drops in May, price pressures remain muted
Personal consumption expenditures fell 0.3 per cent after adjusting for inflation, according to Bureau of Economic Analysis figures. PHOTO: AFP US consumer spending declined in May by the most since the start of the year, indicating elevated uncertainty around the Trump administration's economic policies is increasingly weighing on the outlook for growth. Personal consumption expenditures fell 0.3 per cent after adjusting for inflation, according to Bureau of Economic Analysis figures published June 27. The Federal Reserve's preferred inflation gauge, the PCE price index minus food and energy, rose 0.2 per cent – slightly more than expected, though still consistent with limited price pressures. The decline in spending, which was broad-based, coincides with declining consumer sentiment this year in response to President Donald Trump's unpredictable trade policy. Inflation has been muted so far in 2025, though many economists expect that it will pick up in the next few months as businesses increasingly pass higher import duties on to households. The latest figures suggest sluggish household demand, especially for services, extended into May after the weakest quarter for consumer spending since the onset of the pandemic. Spending declined on transportation services, meals out and accommodation, financial services, and other services – a category that includes net foreign travel. Motor vehicle purchases declined 6 per cent, reversing some of the surge in March and April when consumers were rushing to get ahead of tariffs. Wages, Inflation Personal income, meanwhile, fell in May by the most since 2021 on a pullback in government transfers, led by a decrease in Social Security payments. The saving rate fell to 4.5 per cent. Wages climbed 0.4 per cent for a second month, extending a recent run of solid increases. That indicates consumers have the wherewithal to continue spending. However, a sustained slowdown in household demand risks spilling over into a downshift in job growth. The inflation data showed goods prices excluding food and energy increased 0.2 per cent, a slight deceleration from a month earlier. Core services prices – a closely watched category that strips out housing and energy – edged up just 0.1 per cent after a flat reading in April. Fed Chair Jerome Powell told lawmakers this week that he expects inflation to pick up in June, July and August as tariffs become increasingly reflected in consumer prices, though he added if that prediction fails to materialise, the US central bank could resume interest-rate reductions sooner rather than later. Fed governors Christopher Waller and Michelle Bowman – both appointed by Mr Trump – have said they could support a rate cut as soon as the next policy meeting on July 29-30 if inflation remains muted. The Bureau of Labour Statistics will offer the first look at June consumer price data on July 15. Investors are currently betting the Fed's next rate reduction will come in September, according to futures. BLOOMBERG Join ST's Telegram channel and get the latest breaking news delivered to you.
Miami Herald
2 days ago
- Business
- Miami Herald
Stock Market Today: Market Meltup Continues as China Trade Deal Nears
Stocks appear set to continue higher today based on three main factors: A trade deal with China appears to be close (and maybe with India, too)The tax bill would lower taxes on corporations and increase their profitsFed rate cuts in 2024 The Fed's preferred gauge of inflation, the PCE, or Personal Consumption Expenditures Price Index, was reported this morning. According to the Bureau of Economic Analysis, May's PCE rose 0.1%, and 2.3% year-over-year, in line with expectations. However, Personal Income and Personal Spending were weaker than expected, dropping 0.4% and 0.3%. How did stock futures react? They dropped but remain higher on the day. ThinkOrSwim ThinkOrSwim Overall, stock futures are higher, bonds are mixed, and gold is lower. Crude continues to bounce around the $65 level we've been discussing all week. Later this morning, the University of Michigan will release its Consumer Sentiment index. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
