(A)Political - March 22nd

Good morning everyone,

There’s a lot to digest from this past week. Let’s get into it!

We’re set to break down the current economic outlook of the U.S. economy. Trump followed through on a campaign promise, and released all the Kennedy files in Federal custody. The United Arab Emirates just made one of the largest pledges a sovereign country has ever made for another. The U.A.E. will now invest $1.4 trillion dollars in the United States over the next 10 years

• U.S. Economic Update

• Kennedy Files Get Released

• U.A.E Pledges $1.4 Trillion in U.S. Economic Development

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U.S. Economic Update

_{By: Jose Garcia, Residing Fellow at Atlas}

Concerns are mounting about the U.S. economy's trajectory as the Trump administration implements aggressive trade policies and spending reductions through the DOGE initiative. While not currently in recession, economic indicators suggest slowing growth that warrants careful monitoring in the coming months.

Economic Outlook and Growth Projections

There are growing concerns about the likelihood of the U.S. entering an economic downturn or recession in the coming months. Much of this sentiment is driven by the Trump administration's increased risk appetite, particularly its use of tariffs to exert international pressure. Additionally, reductions in government spending have already impacted GDP growth, slowing it compared to 2024 data.

Major financial institutions have revised their growth forecasts downward:

• JP Morgan predicts GDP growth will slow to 2.0%, with recession risk increasing from 30% to 40%

• Morgan Stanley forecasts 1.7% growth

• Goldman Sachs projects just 1.5% growth

These downward revisions stem primarily from recent market sell-offs and uncertainty surrounding the administration's policies. Meanwhile, the Conference Board's Economic Outlook for 2025 and 2026 suggests GDP growth will dip below 2.0%, remaining between 1.3% and 1.9%, largely due to efforts to address the federal deficit.

Kevin Hassett, an economic advisor to President Trump, contradicts these private-sector estimates, stating that GDP growth is expected to reach at least 2.0%. He argues the minimum target should be 1.8%, as growth below this level tends to drive inflation higher. With inflation currently stabilized at 2.8%, preventing negative shifts that could disrupt economic stability is crucial.

Labor Market Conditions

The unemployment rate has increased slightly from 4.0% to 4.1%, according to recent economic reports. However, during the same period, the economy added 151,000 jobs. This small unemployment increase is not significant enough to raise immediate recession concerns, though it remains an important indicator for predicting economic downturns.

The addition of a substantial number of jobs suggests businesses are still hiring and demand for new employees remains strong. Importantly, current reports do not yet account for potential job losses resulting from the recent DOGE initiatives, which may impact future labor market data.

Consumer Behavior and Spending Patterns

The impact of tariffs on consumer spending will be significant, as the administration's strategy relies on economic pressure. The increased cost of imported materials and parts for manufacturing will likely force companies to raise prices, potentially deterring consumers from purchasing non-essential goods.

Currently, the Consumer Sentiment Index stands at 98.3 points. While there has been a 10% decline in confidence among surveyed groups, consumer sentiment alone is not a definitive recession indicator. Historical data shows recessions have begun at both higher and lower sentiment levels than current readings.

The Consumer Spending Indicator is currently below expectations, with all incorporated rates falling 0.1% short of February's projected target. This decline has eased concerns about falling consumer confidence but indicates that actual spending is not exceeding expectations—a stabilizing factor in the current economic environment.

Market Impacts and Sector Vulnerabilities

The technology sector appears most vulnerable to the Trump administration's tariffs, particularly the 20% surcharge on Chinese imports. China exports $1.12 billion worth of electronic goods to the U.S., making it a key supplier. Some companies prepared by stockpiling tech components before the tariffs took effect, but this will only temporarily delay the inevitable impact on profits.

Given the thin profit margins of many tech companies, price increases are likely, which could contribute to inflation and affect the Consumer Price Index (CPI)—a key indicator of economic slowdowns.

However, an opportunity exists for the U.S. to strengthen its relationship with Europe through the technology sector. Goldman Sachs reports that over the past decade, $425 billion has been invested in European tech markets, compared to just $45 billion in the previous decade. Additionally, 350 European tech companies are expected to go public in 2025, creating opportunities for collaboration that could help ease tensions and reduce reliance on Chinese imports.

Government Spending and the DOGE Initiative

One of Elon Musk's key objectives under the DOGE initiative is to reduce the federal deficit before the end of the Trump administration. To achieve this, Washington's overall spending is projected to decline significantly over the next two years, with estimated net changes in total government spending ranging between 0.1% and 0.8%.

This marks a substantial reduction from 2024 spending levels, which ranged between 2.0% and 5.1%. Consequently, government spending has become the most critical factor to monitor for economic stability, followed by the Consumer Spending Index.

The DOGE initiative's constraint on government spending, combined with aggressive tariff policies, represents a significant shift in economic approach that will likely continue to slow growth in the near term. Whether these policies will trigger a full recession remains uncertain and will depend on how markets, consumers, and international trading partners respond to these changing conditions.

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