Arya News - Apparent economic strength owes in part to a lag in data, experts said.
Market turmoil and recession warnings have helped fuel worry about the United States economy in the aftermath of President Donald Trump’s tariff escalation -- even as key measures of the economy remain fairly strong.
Federal Reserve Chair Jerome Powell this week addressed the disconnect between the robust data and the dampening outlook.
“Despite heightened uncertainty and downside risks, the U.S. economy is still in a solid position,” Powell said. He said he welcomed cooling inflation and resilient hiring, but also voiced alarm about the potential effects of Trump’s tariffs.
“Life moves pretty fast,” Powell added.
Economists who spoke to ABC News said the apparent dissonance between the economy’s gloomy outlook and its clean bill of health stems largely from a quirk in economic data.
Measures of the economy like inflation and hiring are released a month after the data is gathered, and they often reflect slow-moving shifts in business or consumer behavior, the economists said. As a result, such measures can prove outdated, especially when the economy is in flux.
By contrast, the economists added, barometers of market sentiment like stock performance and consumer surveys offer an up-to-date snapshot of how participants are feeling and, in turn, where the economy may be headed.
But forecasts derived from these metrics are imperfect, they added, leaving open the possibility that signals could be overstating or underplaying the eventual effect of tariffs.
Due to the lag in economic data, the gap between solid readings and dire warnings “may be smaller than it seems,” Jesse Rothstein, a professor of public policy and economics at the University of California, Berkeley, told ABC News. “Ultimately, we’ll have to wait and see.”
Trump’s “Liberation Day” tariffs earlier this month set off one of the most volatile periods of stock trading in U.S. history. The uneasiness roiling markets also manifested in shopper surveys, one of which last week showed worse attitudes about the economy than at any point during the Great Recession.
Many economists expect Trump’s tariffs to hike costs and slow growth, since importers burdened by the tax are expected to raise prices for consumers, who may opt to curtail spending and ratchet down the main engine of U.S. economic activity.
“Consumer sentiment is a leading economic indicator – it’s saying people are worried now and they’re going to stop buying,” Frederick Floss, an economics professor at Buffalo State University, told ABC News.
Plus, Rothstein said, the stock market isn"t merely a measure of sentiment. \"People are putting their money where their mouth is,\" he said.
For now, the economy remains in solid shape by several top measures.
The unemployment rate stands at a historically low level. Job growth remains robust, though it has slowed from previous highs. Meanwhile, inflation cooled in March, putting price increases well below a peak attained in 2022, fresh data last week showed .
Data remains unavailable for the level of inflation and hiring in April, meaning the readings so far predate Trump"s tariff escalation.
A report on gross domestic product to be released at the end of this month will offer the first gauge of economic growth at the outset of this year. The U.S. economy grew at an annualized rate of 2.4% over the final three months of 2024, which marked solid growth.
“The U.S. economy is quite resilient,” Matias Vernengo, a professor of economics at Bucknell University, told ABC News. “Inflation is low, the economy is still growing at a relatively quick pace.”
Still, Vernengo said, some of the purported strength may be a mirage because the data is “retrospective.”
“I would be cautious,” Vernengo said, pointing to the possibility of a tariff-induced recession. “If you have to look at the objective data, it doesn’t mean it won’t happen -- just that it hasn’t happened yet.”
Recession fears are mounting on Wall Street. Goldman Sachs earlier this month raised the odds of a recession within the next year from 35% to 45%. On Tuesday, J.P. Morgan hiked its odds of a recession occurring in 2025 to 60%.
The warnings of a downturn echo forecasts made during the latter years of Joe Biden"s administration, but a recession never came to pass. In that case, sour consumer sentiment also served as a major source of fear.
The outlook has changed significantly since the Biden administration, however, some economists said.
Biden’s policies helped bring about an economic recovery, though the fallout risked a severe bout of inflation, Vernengo said, while Trump’s tariffs have stoked uncertainty and hiked taxes for some corporations.
“Trump has created a storm,” Vernengo said. “It will very likely have consequences.”