Trump inherits Biden's expensive financial legacy
America may be almost done with Joe Biden's policies, but malign economic legacy We are not done with his departure from office.
The latest economic data shows that Donald Trump will inherit the economy Inflation is entrenched at high levels, manufacturing is moribund, trade imbalances persist, budget deficits are at unsustainable levels, and consumers view the economy as seriously unhealthy. There is.
This week's Consumer Price Index (CPI) report showed: Inflation accelerated year on yearrose from 2.7% in November to 2.9% in December, an increase of 0.4% on a month-on-month basis, following a 0.3% increase in the previous month. Bond and stock markets were relieved that core inflation was slower than expected, but inflation in the areas that are putting the most pressure on household budgets…food, energy and shelter—It was still very hot. As is often said, there is not much inflation except for essential goods.
Even more troubling, indicators of underlying inflation suggest that: Fed's 2% target remains out of reach. The median CPI rose to 0.3% month-on-month, but at one point fell to 0.02% in November. It has remained at that level since July, a clear sign that inflationary pressures are not abating. Converting this to an annual rate, the inflation rate is approximately 3.6%. The Cleveland Fed's 16% reduction resulted in an average CPI of 0.3, which is exactly what it has been for each month since September. Converting this to an annual rate, the inflation rate is approximately 3.2%.
something that has been largely ignored The Producer Price Index report also contained red flags.. Although much of the financial media insists on calling this the “wholesale price index,” it actually has little to do with wholesale prices. Instead, it is a measure of what domestic producers sell to consumers, businesses, households, governments, and foreign buyers. Here, final demand The index, which tracks prices paid for goods and services sold to end users, was somewhat benign, but there was a lot of danger beneath the surface.
Producer price index for processed goods intermediate demandSales of goods sold to businesses and then purchased by households rose 0.3% from the same level in November. The index actually posted a slight gain for the year after last year's decline. this is, Disinflationary pressure from the financial side of the economyIt has kept overall inflation numbers in check even while services inflation has been heating up, but that trend has probably run its course. Unprocessed goods for intermediate demand, or the economy's raw materials, rose 3.2%, the biggest increase since 2022, when it rose 4.6%.
Manufacturing industry remains sluggish and trade deficit soars
The Institute for Supply Management's survey of manufacturing purchasing managers shows that: Factory sector shrinks for 9th consecutive monththe 25th month of contraction in the past 26 months. S&P Global's research on the sector was even more pessimistic, with the company's chief economist reporting that manufacturers had “reduced their optimism for growth in the year ahead.” Orders are falling, input costs are rising (as shown by the intermediate demand producer price index), and production growth is slowing.
This year's US trade deficit is expected to be about $1 trillion. According to the latest statistics, the trade deficit in November was approximately $78.2 billion, up significantly from $64.8 billion in the same month last year (much higher than the $40 billion to $50 billion during the Trump administration's first term before the pandemic). ). Despite Biden's rhetoric about reinvigorating American manufacturers and his big talk about putting American workers first, he has overseen every policy. America's trade balance collapses to previously unknown levels.
The Congressional Budget Office reported last week that the federal government borrowed $710 billion in the first three months of fiscal year 2025, including $85 billion in December. In calendar year 2024, the government borrowed $2 trillion. Never before has debt increased so rapidly during a peacetime economic expansion.
There are some signs of hope. Optimism among small and medium-sized businesses is rapidly increasing. Indicators regarding the future outlook for the factory sector are brighter than they have been in recent years. “Many companies generally expect business to improve in the new year, with respondents saying the new administration will ease regulations, lower tax burdens and increase demand for U.S. products through tariffs,” said Chris Williamson of S&P Global. I am hopeful that it will increase the I will report it. According to a YouGov poll, the percentage of Americans who say they will be financially well off in a year's time has risen to 35%. economist, That's up from 29%, which prevailed for most of last year.
But overcoming the strain Biden has placed on the economy will not be easy. we will be Haunted by the specter of his financial legacyAnd it will take every effort of the Trump administration and the razor-thin Republican majority to kick it out.
