Once you start looking, the signs of an American recession are everywhere.
The second-hand market is heating up, a classic pre-recession indicator. People are unloading luxury goods. Second-hand clothes apps, such as RealReal, Depop and Grailed, are filling up with designer handbags and sneakers bought during the la-la economy of the pandemic. This always happens before a crash.
You might remember that eBay boomed before the 2008 recession. People panic-sold designer handbags faster than you could say Anglo Promissory Note. Splurges always lead to sell-offs.
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It looks like 2025 will be the year the pandemic chickens come home to roost. When the plague hit five years ago this week, governments closed down our economies and rather than impoverish workers who were forced to stay home, national treasuries opened the fiscal and monetary spigots. Government spending soared and interest rates were cut to negative territory. About $15 trillion (€13.85 trillion) of fiscal/monetary sweeties were doled out by the world’s richest governments to protect their stay-at-home electorates. (The governments had no choice; a great depression would have accompanied the plague.)
Investment and speculation took off in a splurge of credit, consumption and debt. As sure as night follows day, the credit cycle rolls and we are about to pay a terrible price for the emergency economics of Covid-19.
In tune with our always-on age, the coming American recession will be live-streamed on Instagram. Every small change in consumer confidence and business sentiment will be videoed, shared, commented on and thus amplified. We are witnessing the TikTok-isation of the business cycle, meaning the economic cycle – previously a slow-moving, deliberate phenomenon – will pick up pace, becoming fitful and immediate.
The impact of a slowing economy on investment and spending will be almost immediate
In the past, it took people time to realise that the economic backdrop was changing. Today, with social media and a US president who behaves more like a near-bankrupt day trader than a long-term investor, our collective time horizons have been slashed from years to months, weeks to minutes. The impact of a slowing economy on investment and spending will be almost instantaneous.
The latest signs from the American heartland are not encouraging. The average voter’s confidence about their economic prospects is falling quicker than at almost any other time on record. The litany of surveys pointing to recession, or more accurately a Trump-cession, not to mention the sell-off in American stock markets, suggests we are on the cusp of something enormous. The incoherence of Trump economics – with its on-and-off tariffs – is making already indebted consumers and businesses even more anxious.
Punters across all income brackets are panicking and consumer confidence is collapsing, although it is richer workers who are most worried. This probably reflects the fact that middle-class Americans are heavily invested in the stock markets, which are back to where they were in September and falling farther. Since Trump was inaugurated, the percentage of voters who are worried about their job has shot up from 30 per cent to close to 80 per cent of all those surveyed. The number of consumers worried that businesses might close has spiked up to the highest level since records began in the middle of the 1980-81 recession.
The average American is now more worried about inflation than at any time since the beginning of the pandemic
People’s confidence about where their income will be in a year has plummeted to the lowest level since 2009, right after the Great Crash. Worse still, the average American is now more worried about inflation than at any time since the beginning of the pandemic, when prices shot up because of the shutdown of industry.
This combination of a rapidly weakening economy and fear of inflation points to an old enemy not seen since the 1970s: stagflation, where unemployment and inflation rise together. In such an environment, prices rise at the same time as incomes fall. The main trigger is the broad electorate’s understanding that tariffs are a tax on spending that will raise the price of goods for working Americans.
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What is going on in corporate America, the part of the economy that was supposed to be boosted by Trump? Earnings are an important leading indicator, as profit squeezes foreshadow lay-offs and investment cuts. Corporate profits surged in 2021 but have now entered a slower growth phase. By the third quarter of 2024, US corporate profits fell 0.4 per cent quarter-on-quarter, the first decline in years. By late 2024, year-on-year profit growth was 5.9 per cent, down from more than 20 per cent in 2023 – this is a huge slowdown in margins.
Trade allows better, cheaper products to come in from abroad, putting manners on local crony businesses
All the while the nonsense that is Trump’s economic plan continues to be “sane-washed” by many writers and commentators as if there is some brilliant economic rabbit about to be pulled out of a hat by the sages of Mar-a-Lago. Declaring a trade war on your four biggest trading partners – Canada, Europe, China and Mexico – will simply push up American prices, robbing US consumers.
Tariffs are a way of taking something away from somebody. Trade allows better, cheaper products to come in from abroad, putting manners on local crony businesses. Tariffs protect second-rate local businesses, allowing them to sponge off consumers, flogging second-rate goods when punters could be buying superior imported stuff. In the end, tariffs take from buyers and give money to yellow-pack local sellers who can’t compete in the international market. There’s a reason that low tariffs, which have been reduced continuously in the past 50 years, corresponded with the greatest expansion of the global economy ever seen.
Protectionism is a sign of weakness, not strength. Americans are not being “ripped off”; in fact, they are being enriched by having access to better, cheaper, superior products made by more productive people. Rather than being the beginning of a great new era of American prowess, tariffs are a sign of insecurity and fear, marking the end of the great American century that began after the end of the first World War.
The fascinating thing is that the average “Joe Six Pack” American appreciates this; otherwise, why is he so fearful about the future?
