Yes, It’s the Economy
In 1992, political consultant James Carville coached then-presidential candidate Bill Clinton to campaign with the mantra “It’s the economy, stupid.” That quip was a reminder that the condition of the economy is a critical factor in determining how favorably leaders are perceived. Several recent polls reveal that less than 50 percent of the populace view President Donald J. Trump favorably, whereas over 50 percent view him unfavorably. The recent wild gyrations on Wall Street indicate that economic policy is a factor in such high disapproval ratings, which begs the question: Just how is the economy performing? The answer: It depends who you ask.
The White House has declared that the country has entered a “New Golden Age,” one that will “make America wealthy again.” In his April 2 “Liberation Day” speech, the president outlined how we will all become wealthy. Other voices—including those of economists, central bankers, rating agencies, and Wall Street investors—maintain that the economy is headed in the wrong direction. Perception of the economy’s condition is largely divided along party lines, with Republicans more inclined to view it positively. But a sizable number of Republicans feel that the White House’s handling of the economy is misguided. The direction of the economy is too important an issue to be left to partisan animal instincts. It impacts the bread-and-butter concerns of all Americans, including the value of our savings, the cost of living and housing, hiring, and employment.
What May the Future Hold?
To shed objective, unbiased light on the true condition of the economy and its prospects, we defer to the wisdom of 46 economic forecasters. These experts stick their necks out every quarter to produce point estimate predictions about economic growth, employment, and inflation. The Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters aggregates these forecasts. The Second Quarter 2025 forecast was issued May 16, and its findings are not pretty.
The Philly Fed outlook for the economy worsened from the first quarter. In the Q1 survey, economic growth was forecasted at 2.1 percent. In the Q2 forecast, economic growth dropped to 1.5 percent. Economic growth for this year is forecast at 1.4 percent, down from 2.4 percent forecasted in Q1. Inflation is forecasted to rise to 3.1 percent this year, up from the 2.8 percent forecasted in Q1. Unemployment is forecasted to rise to 4.3 percent this year, up from the last quarter’s 4.2 percent. Most troubling of all, the probability of a decline in gross domestic product (GDP) growth shot up sharply from 15.4 percent in Q1 to 37.0 percent in Q2. The forecast for a decrease in GDP, possibly heralding a recession, also rose sharply.
The stock market is a barometer for expectations of economic growth, measured by future earnings of publicly traded companies. The Dow Jones Industrial Average reached an all-time peak on Dec. 4, 2024, closing at 45,014. Just six days after the “Liberation Day” speech, the index cratered to 37,645—a 16.4 percent decline. It is currently down from its high by approximately 10 percent, though the market continues to swing widely. The source of the volatility, especially on the downside, is the expectation of inflation from the imposition of steep protectionist tariffs.
What About Now?
Whereas the Philly Fed survey focuses on the future, the Federal Reserve produces a report compiling reports from all 12 federal districts on current economic conditions in their region. Published eight times per year, “The Beige Book”—so called because, back when everything was printed, the report had a beige cover. It contains one-paragraph summaries for conditions in each of the districts (Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco).
The most recent beige book came out April 23. Its most salient finding highlighted “uncertainty around international trade policy.” Each of the 12 regional summaries features a slowdown in economic activity and more pervasive uncertainty. None of the districts reported brisk conditions.
As atomic physicist Niels Bohr once said, “Prediction is very difficult, especially if it’s about the future.” Forecasts are notoriously hard to get right because even the most sophisticated models may not incorporate the probability of remote external events, such as a pandemic or a trade war, impacting the economy. Setting aside lofty rhetoric about a golden age and focusing on the factors that drive economic growth, there is no joy in Mudville. We may be heading for a recession and the economic pain that might bring. Our response should be to contact our elected officials to tell them our concerns about how economic policy is playing out and let them know that free trade—not isolationist protectionism—is the path to prosperity.