It’s interesting to toss stones into a lake and watch the ripples spread, musing about when those ripples might settle. However, when significant policy uncertainties stir the economic waters, predicting the fallout becomes a bit more complex.
Even though the American economy remains unsettled from previous policy impacts, there seems to be a possibility of returning to calmer waters post-COVID and amid various initiatives from both the Biden and Trump administrations. Now, it’s important to understand how this new wave interacts with what’s already receding.
So, what’s the next step?
As we reached the 10-year mark of the COVID pandemic, a massive policy shift occurred. This led to significant economic transfers and closures, more akin to surging tides than mere ripples.
Fast forward to 2025; Donald Trump has re-emerged with promises of a “golden age.” Unfortunately, this swiftly led to further disruptions.
To make sense of it all, we must consider two types of economic indicators: soft and hard.
Soft indicators reflect public sentiment about the economy—are people feeling hopeful or doubtful? Are they leaning toward long-term investments, or just sitting tight? On the other hand, hard indicators present concrete data: Is GDP growth on the rise? What does industrial production look like? How are employment rates and new businesses forming?
The Consumer Trust Indicator and University of Michigan’s Consumer Sentiment Index are two notable soft indicators. Both provide a mix of current and forward-looking data, and recently, they showed some positive shifts as confidence grew with clearer policies under Trump.
The Michigan Index recently improved, marking its strongest increase in six months, following a previous decline that had brought it to one of its lowest points in 75 years. Meanwhile, consumer confidence surged in May, despite a drop in June as tariff concerns resurfaced.
The National Federation of Independent Businesses publishes a monthly Optimism Index, which turned positive for two consecutive months in June, after a prolonged period of uncertainty from 2021 to 2024. This suggests that small and medium-sized businesses might finally be seeing calmer times.
Next, let’s look at the Economic Policy Uncertainty Index, which tracks how often the term “uncertainty” appears in major daily newspapers. As of June 15th, this index dropped to 521 from a recent high of 976 in early April, following a significant policy announcement.
Still, ripples of uncertainty persist. The National Association of Home Builders reports a declining outlook, with its Housing Market Index sliding to a low since December 2022.
On the hard indicator front, the situation remains a mix of hope and confusion.
First-quarter GDP growth fell by 0.5%, a contrast to a 2.4% rise in the previous quarter. This drop was influenced by an influx of imports before tariff increases came into play, impacting GDP negatively. Retail sales in May also saw a 0.9% decline compared to April, revealing consumer hesitance.
May’s employment figures showed growth, adding 139,000 jobs, although this average has trailed behind the previous year. Industrial production was somewhat mixed, with a 0.5% decline in April but a slight recovery in May.
High interest rates have caused construction job losses, pointing to tariffs as significant contributors to ongoing uncertainty.
An indicator of new business formation continues to hold strong, which is encouraging. Additionally, the inflation effect from COVID appears to be lessening, which is reassuring amidst tariff-driven pressures.
As geopolitical tensions rise with Trump’s more aggressive stance towards Iran, uncertainties could further disturb the economic waters, impacting US alliances and operations.
For now, we may anticipate a bumpy oil market and higher energy costs, accompanied by potential implications for inflation and interest rates.
Will we soon see calmer waters, or are more disruptions on the horizon? It’s tough to predict with certainty. However, many factors are within our control, and hopefully, our leaders will stop introducing new waves of uncertainty.
