According to the Wall Street Journal (WSJ), the U.S. economy has experienced several rounds of recession warnings in 2023 and 2024. With the uncertainty brought about by U.S. President Trump's tariff policy, the U.S. economy is entering an "uncomfortable summer", with concerns in the labor market, weakened consumption, and shocks to the financial market, becoming the three major risks of the U.S. economy.
According to reports, U.S. job growth remained stable in May, with 139,000 new jobs in the national economy, and the unemployment rate has remained in a narrow range of 4% to 4.2% over the past year. However, there are cracks beneath the surface, and companies warn that changing trade policies are interfering with the ability to plan for the future, leading to stagnant recruitment and investment. Policy uncertainty has increased against the backdrop of slowing job growth and a cooling real estate market.
Companies are not hiring or increasing spending
Starr, head of UltraSource, an importer and manufacturer of meat processing technology in Kansas City, Missouri, said he will adopt a conservative strategy of neither hiring nor increasing costs before figuring out the tariff issue. The company is waiting for European suppliers to complete a US$20 million (about HK$156 million) order placed before the 10% tariff took effect on April 9. This means that if the tariff remains at this level, he will face a tax of US$2 million (about HK$15.6 million). "How can I pay this money? This may wipe out a whole year's profit."
The founding partner of Beacon Economics, an American economic consulting firm, said, "The final direction of the US economy depends entirely on Trump's next decision. Frankly speaking, even Trump himself does not know what he will do next, so it is almost impossible to predict how things will develop."
The unemployment wave may present a chain effect
The Wall Street Journal said that the US economy is facing three major risks. The first is that the US labor market has been in a state of uneasiness. Companies are neither hiring new employees nor willing to lay off employees who were recruited with great difficulty three or four years ago. Once companies believe that demand is so weak that they can no longer retain employees, the unemployment rate may rise rapidly. "It starts with a big company, and then competitors may say, 'We have to do this, too,'" said Daco, chief economist at consulting firm Ernst & Young.
The second is that consumers may eventually resist rising costs and reduce their consumption, forcing companies to shrink. Consumer debt delinquencies have been rising over the past year, raising concerns that consumer spending could slow more significantly as the financial situation of low-income borrowers deteriorates.
The third is that financial market shocks or sudden shifts in market sentiment remain uncertain. The Federal Reserve cut short-term interest rates by 1 percentage point last year, which, to some extent, eased the pressure on borrowers of credit cards or floating-rate bank loans. The Federal Reserve has suspended rate cuts this year due to concerns that tariffs may bring new inflation risks. Medium- and long-term borrowing rates are not set by the Federal Reserve, but they affect many borrowing costs, such as home mortgage loans. As global investors focus more on how governments will finance their growing deficits in the coming years, medium- and long-term rates have risen. Continued increases in borrowing costs could spread to the stock market, hurting corporate profits and reducing the attractiveness of stocks, while high asset prices have supported corporate investment and spending by high-income consumers.
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