Data that usually warns of a recession just had its worst reading in 12 years

[Simone Del Rosario]

If the path of the U.S. economy were dictated solely by how Americans feel about it, the U.S. would certainly be heading into a recession.

The Conference Board’s Expectations Index fell to its lowest level in 12 years. At 65 points, the Board says it’s well below the threshold of 80, which usually signals a recession ahead. That said, American expectations have been bouncing above and below this threshold for about three years. 

At the same time, Consumer Confidence fell for the fourth straight month. Much of the fall in March came from Americans ages 55 and older. 

More Americans expect higher interest rates and higher inflation over the next 12 months. 

That line of thinking is in line with Atlanta Federal Reserve President Raphael Bostic. He just told Bloomberg he changed his thinking from two rate cuts this year to one. 

[Raphael Bostic]

I was at two. I moved to one mainly because I think we’re going to see inflation be very bumpy and not move dramatically in a clear way to the 2% target.

[Simone Del Rosario]

Bostic is not voting on policy moves this year. The Fed is still projecting two cuts in 2025. 

I want to bring in former Fed adviser and CEO of QI Research, Danielle DiMartino Booth. 

Danielle, we’re just getting this news this morning about how consumers are feeling about the economy. What was your initial reaction to seeing those numbers?

[Danielle DiMartino Booth]

Well, it takes quite a bit to surprise me, and yet they really did take me by surprise. And I think the aspect in particular were the views on the job market going forward, and especially the outlook that US households have for their income growth in the coming 12 months. And I think that this is kind of the area that is least understood right now by Fed officials, when you see a number completely collapse in terms of where consumers see their paychecks, right? It’s their paychecks that dictate what they spend. When you see that number absolutely collapse, you have to say to yourself, well, now I understand why the CEOs of Walmart and dollar tier are talking about consumers trading down this. This all makes sense. Now I see why services spending has completely flatlined, and why Americans aren’t able to splurge on discretionary goods or services going forward. This is why Las Vegas traffic is down 1.1% year over year, because Americans can’t afford to spend money on what they want, only on what they need. And that, I think, is where there’s a lot of confusion right now between monetary policy makers and the state of US consumption, which is, after all, a record 71% of us, GDP.

[Simone Del Rosario]

Yeah. The Conference Board says that Americans that were writing in were increasingly worried about tariffs, about trade policies, and, of course, the impact on inflation. You just talked about how far they feel their dollars stretching these days. Do you think that the people responding to these surveys are reading the tea leaves correctly on the state of the economy? 

[Danielle DiMartino Booth]

I think they’re certainly reading the tea leaves correctly when it comes to the availability of jobs or the lack thereof. That’s something that they see on the ground every day. We’ve recently seen with the Atlanta Feds data, in fact, which makes it rather ironic that it was Bostic speaking. But we’ve recently seen the job gains for job stayers, people who are staying with their jobs, exceeding those of job switchers, that’s a complete reversal of the quiet pudding dynamic that we saw during the immediate aftermath of the pandemic. And in fact, this is the first month that we’ve seen where people who are sticking with their jobs are making a little bit more than people who are switching. That’s a sign of insecurity. And so I think what American households are reacting to right now is what I call the the tariff terror campaign. The media is hell to convince us, households that tariffs are going to raise inflation overnight, dramatically. And yet that is not what we’re hearing from retailers on the ground saying we’re not able to pass through price increases. Even if we had higher costs, we would not be able to pass them through to us consumers, as I say, you cannot squeeze blood from a rock. You cannot force a US consumer to spend more money than they have.

[Simone Del Rosario]

But you nailed it. That is the fear that the tariffs are going to increase inflation. And clearly, Americans are increasingly worried about it, whether it’s media headlines or you know what they expect will happen based off of what they’re reading into what are your thoughts on the tariff risks and risks to inflation.

[Danielle DiMartino Booth]

So, I mean, you know, all I have to go off of is the fact that with every succeeding day we see the tariff headlines become a lot less frightening. Now they’re going to be more targeted. They’re going to roll out more slowly. It’s starting to. Feel and seem and look like. What happened going from 2018 and 2000 2019 and what happened in that episode was Trump sent out his initial tweet in April of 2018 and in December of 2019 more than a year and a half later, the CPI was actually lower than what it was in April of 2018 there was a bigger drag on growth than there was an increase. In fact, there was a decrease in the consumer price index. But again, that’s not what US households are being told is going to happen. They’re not being informed of what historically has taken place, because the media always has a job to do, right? They have a bias to to satisfy, and that, I think, is what we’re seeing today. And I don’t think I’m speaking out of hand. And my second master’s does happen to be from Columbia, in the journalism school. I am a member of the fourth estate, and what we’re seeing right now, again, is very much a media driven fear campaign, telling us consumers that inflation is going to increase, even though history dictates otherwise.

[Simone Del Rosario]

Well, and to your point too, the narrative is changing. Right? What we’re being told from the beginning, from you know, the leading person dictating this policy, which is the President, and what ends up happening later on can be two very different stories related to how these tariffs are implemented. Is that back and forth kind of settling a little bit more? Are we getting a clearer picture of how these tariffs will work?

[Danielle DiMartino Booth]

Well, you know, when you see things like, oh, you know, if the average General Motors, vehicle crosses the border between Canada and Mexico eight times. And what would an eight times 20% tariff be? And that’s really scary. And then you see, as the dust starts to settle, well, but automobiles are going to be excluded. So if you if you start to look at the nuances, at the asterisks, at the oh, wait, stop here. Look at the fine print. These things start to become a lot more focused and targeted, I think, at what the true target is, and that’s China. And we really are going after our closest trading partners, ties that have been forged with China and trying to break them up where they exist, not necessarily, you know, take General Motors down or make Ford file for bankruptcy. Dot. Dot. Dot. Again.

[Simone Del Rosario]

Danielle, as this dust settles that you’re talking about, do you think that this is going to free up businesses a little bit more. Now that it’s a little bit of the uncertainty is starting to pass.

[Danielle DiMartino Booth]

One would certainly hope that that was the case, right? Challenger grand Christmas announced 172,000 job cuts for the month of February. Only 62,000 of those were in the public sector, meaning private sector layoffs are much bigger than public sector layoffs. Dot, dot, dot. Still full time employment in the United States and the private sector peaked in April of 2022 this has to stop. Companies have to stop cutting costs. Companies have to stop with their layoffs. We have to get through an entire earnings season without her, without hearing we’re protecting our margins by reducing headcount that has to stop in order for consumer confidence to reverse and start to recover again. Actions speak louder than words.

[Simone Del Rosario]

Danielle DiMartino booth, CEO of Qi research, we always appreciate your insight. Danielle, thank you, and

[Danielle DiMartino Booth]

Thank you for having me.