The United States’s economy is starting to show signs of tension while President Trump’s sudden movements to reduce federal spending, dismiss government employees and impose prices for the largest American trade partners roaming companies and repercussions in states and cities.
The financing of gels and dismissals of federal workers combined with the prospect of costly trade wars embittered the feeling of consumers, increasing the expectations of inflation and the dropout of commercial investment plans, according to recent economic surveys.
Local savings are also preparing for a sudden withdrawal of budgetary support, forcing those responsible to consider increased tax increases or municipal bond offers to stabilize their budgets. Although Mr. Trump recognized that his policies could bring initial pain, the signs of early alert suggest that his frank approach could pay more worrying risks to the economy.
“There is more uncertainty than I think this is widely appreciated,” said Michael Strain, an economist at the Conservative American Enterprise Institute. “All uncertainty about commercial policy, uncertainty around some of the things that the Ministry of Government Effectiveness does, I think you will have a scary effect on investment plans and expansion plans.”
Trump took office last month at a time of stable economic growth and softening of inflation. The American economy continues to be the strongest in the world.
But economists have warned that its plans to implement radical prices could increase prices and trigger trade wars that would weigh on growth. There are early indications that these concerns were valid.
The president’s moves to arrest foreign aid and freeze federal funding have already wreaked havoc to national farmers who export billions of dollars of products as part of American foreign aid programs. Although some of Mr. Trump’s orders to stop funding were interrupted by the courts, they have always disrupted early childhood programs such as Head Start. Billions of dollars in climate investments and the infrastructure that was underway during the Biden administration are now in limbo.
A historically solid labor market, with a 4%national unemployment rate, is also in danger. The so-called Ministry of Government’s efficiency, led by Elon Musk, has sparked thousands of job cuts across the federal government. Reductions of the workforce are only just beginning because the cost reduction initiative examines the way agencies align with Mr. Trump’s agenda.
The layoffs have repercussions beyond Washington, stimulating demonstrations during the town hall meetings and the achievable reactions of certain republican legislators, which have been alarmed with regard to the economic benefits of their states.
“Dozens of Alaska – potentially more than 100 in total – are dismissed as part of the order of reducing the force of the Trump administration for the federal government,” wrote Senator Lisa Murkowski, republican of Alaska, wrote on X.
The institutions that are based on federal funding of agencies such as the National Institutes of Health and the National Science Foundation are already preparing to reduce in the face of frozen payments and other potential policy changes.
University of Stanford said On Thursday, he implements a job freeze through university due to NIH’s intentions to reduce payments that help finance research and the possibility that university endowment taxes can soon increase.
In Pennsylvania, Governor Josh Shapiro continued the Trump administration more than 2.1 billion dollars in federal funding which was frozen or reviewed. Money – which is dedicated to the programs that guarantee the safety of mines and abandoned wells of traffic jams that could flee toxic chemicals – were restored this week, but frost has created uncertainty in the state.
“The federal government has concluded agreements with government government agencies to obtain these dollars in people’s communities,” said Shapiro this week. “These agreements are binding. To put it simply: an agreement is an agreement. »»
Emily S. Brock, director of the Federal Lisaison Center of the Government Finance Officers Association, said that local officials rushed to determine which of their projects could be interrupted by the freezing of federal funding. Local governments fear that the sudden loss of federal money will be able to lead to violated contracts if the services suddenly have to stop.
To compensate for the withdrawal of federal budgetary support, Ms. Brock said that municipalities are starting to issue more obligations and seek other ways to increase income. She noted that it was a net reversal of the postpandemic era, when the Biden administration sent $ 350 billion in the use of states and cities.
“To go from $ 350 billion to nothing, it’s a fairly impressive difference,” said Ms. Brock. “I think that the governments of states and locals will have to think in a creative way of many different things.”
Economists and analysts also express growing concerns about the balance sheet of the economy.
Apollo Global Management, an investment company, believes that the deletions of jobs related to the Ministry of Government Effectiveness could reach 300,000 and, when government entrepreneurs are included, the total number of layoffs could be closer to a million. These are a small part of the 160 million workers in the country, but could still affect the labor market and other areas of the economy.
“Any increase in layoffs will push higher unemployment claims in the coming weeks, and such an increase in the unemployment rate is likely to have consequences for rates, stocks and credit,” wrote Torsten Slok, Apollo chief economist, in a new report on the intensification of risks to the economy.
Economic indicators have shown signs of increasing stress, a large part of the prices of Mr. Trump. This month, he imposed prices of 10% on Chinese imports and almost imposed 25% prices on the goods of Canada and Mexico, before offering a stay of a month. Trump said on Thursday that prices in Canada and Mexico would come into effect on March 4 and said it would impose additional 10% tariffs on China. The Trump administration is also preparing to impose higher “reciprocal” prices on imports as well as samples from cars, semiconductors and steel and aluminum.
A survey on consumer feeling published by the Conference Board recorded its strongest monthly decrease on Tuesday since 2021 in February. The decline was assigned to the growth of pessimism concerning employment prospects and future commercial conditions, with concerns about trade and prices reaching the levels seen for the last time during the 2019 trade wars during Mr. Trump’s first mandate.
A measurement of the activity of S&P global companies published last week showed a slowdown in business expansion in the United States in February due to “uncertainty and uncertainty surrounding new government policies” such as federal spending reductions and tariff developments.
The housing market also feels pressure. The National Association of Homebuilders said in its latest report that manufacturers’ confidence had fell to a hollow of five months due to concerns concerning prices, high mortgage rates and high housing costs.
At a meeting of the cabinet on Wednesday, Trump rejected the suggestions that his policies created economic anxiety.
“If you look at confidence in the nation, it has experienced the greatest increase in the history of the graph,” he said about a slight increase in confidence after winning the elections, without specifying which graph it was referring to.
Morgan Stanley economists estimate that prices will increase inflation, as measured by the personal consumer expenditure index, from 0.6 percentage points and depress the actual expenses of consumers up to two percentage points. The overall blow to adjusted economic growth as a function of inflation could reach 1.1 percentage point.
For the federal reserve, concerns about inflation prospects seem to prevail over people related to economic growth, the minutes of the last meeting of the Central Bank showed. This suggests that businesses and consumers hoping for a certain relief in terms of drop in borrowing costs can wait a while. So far, the Fed has suggested that new interest rate drops are pending in the foreseeable future.
Trump’s main economic advisers argue that any economic impact of prices will be offset by the range of other policies that the president research, which includes increasing internal energy production, tax reduction and public spending and the reduction of regulatory administrative formalities.
In an interview on Fox News on Sunday, the secretary of the Treasury, Scott Bessent, defended the actions of the Trump administration to reduce the size of the federal government and argued that they were intended to prevent the private sector from being exhausted by federal expenses.
“We have seen what I would call this from the expenses of the orgiac government with the previous administration,” said Bessent. “And we are going to bring this to fall.”
But even some of Mr. Trump’s most ardent supporters see the economy with a certain apprehension. After the stock market markets plunged last Friday, Larry Kudlow, the Fox business host who was the director of the national economic council during Mr. Trump’s first term, said that investors were not satisfied that tax reductions seemed to be delayed at Congress and recognized that prices could temporarily lead to higher prices.
“At least for the moment, economic signals flash slower growth and higher inflation,” said Mr. Kudlow. “Not good.”
Colby Smith New York contributed reports.