New York
CNN
—
A year ago, America was in a vibecession. The economy was in great shape (with some caveats), but the mood was disproportionately lousy.
Today, the vibes and the economic data appear to be aligning. Just not in a good way.
The vibe check in 2025:
Consumers who powered the country through the worst of the Covid-19 recession are crying uncle. Sentiment is the lowest it’s been since 2022, when annual inflation climbed above 9% and the S&P 500 tumbled more than 19%.
Home construction is way down.
Consumer spending, the biggest driver of US economic growth, fell in January for the first time in two years. One closely watched real-time forecast shows the economy contracting 2.4% this quarter. Airlines and major retailers like Target and Walmart say shoppers are pulling back.
Amid all of that, financial markets are freaking out because of the White House’s ever-shifting tariff policies, which threaten to take a sledgehammer to the economy. CNN’s Fear and Greed Index shows Wall Street is being driven by “extreme fear.”
In sum: The solid economy that President Donald Trump inherited is beginning to buckle under the weight of his tariff agenda, which has left businesses, consumers and investors paralyzed by uncertainty.
Of course, Trump is eagerly taking credit for a handful of positive data points while blaming his predecessor for, or simply shrugging at, all the bad news.
Mortgage rates have been steadily coming off their recent highs. Gas prices remain low, near $3 a gallon on average. Overall inflation, even on eggs, is cooling.
But when you pull back the curtain just slightly on those stats, the warning lights are flashing red.
Mortgage rates have been trending lower for the past six weeks because they track the 10-year Treasury yield. And that safe-haven asset — where investors tend to move their money when they see signs of trouble in stocks — is rather popular right now. (Treasury yields go down when demand goes up.)
Gas prices have fallen about 2% since Trump took office, a fact he was quick to pat himself on the back for Wednesday, as my colleague Chris Isidore wrote last week.
“When energy comes down, prices are going to be coming down with it,” Trump said in the Oval Office on Wednesday. “So in a very short period of time, we’ve done a very good job.”
Of course, the reason energy prices are down has nothing to do with his “drill, baby, drill” agenda — oil production in the United States hasn’t risen appreciably since Inauguration Day. The price of oil is coming down because of a supply-and-demand imbalance on a global scale, especially with signs of weaker demand in China.
And yes, inflation is continuing its bumpy descent, according to February’s Consumer Price Index report. Any price relief for consumers is welcome news. But think of inflation like a campfire: You want it nice and warm but manageable. Too hot, you’re losing control; too cool, no one’s warm and no one’s eating s’mores.
Right now, we are burning just slightly too hot at an annualized rate of 2.8%. The Fed is targeting closer to 2%.
Hitting that target without snuffing out the fire is a tricky job under any administration, but it’s especially hard when the White House economic policy shifts by the hour.
One of the reasons the Fed has so far managed to bring inflation down steadily, without triggering a recession, is all due to the labor market. As long as Americans have jobs, and feel confident they’ll keep having a job, they’ll keep spending.
The latest monthly jobs report suggested the labor market is still strong. But it didn’t fully capture the recent layoffs at federal agencies, which have been gutted by Elon Musk. The ADP survey of private sector payrolls showed that sectors like education and health services, which are especially vulnerable to shifts in government spending, slashed 28,000 jobs last month.
What happens next depends a lot on whether Trump retreats on tariffs.
“This is a very resilient economy. It can take a licking and keep on ticking. But it doesn’t like this uncertainty,” David Kelly, chief global strategist at JPMorgan Asset Management, told my colleague Matt Egan last week. “Right now, a lot of businesspeople are like deer in headlights. That’s a very dangerous place to be.”
