Economy showing momentum despite uncertainty

The U.S. economy is showing momentum in early 2025, despite lingering uncertainty in the wake of the November elections.

The Conference Board gave an optimistic outlook for the economy this year, but cautioned that uncertainty about tariffs and immigration could weigh heavily on that outlook as the year progresses.

During a recent webinar, Conference Board economists predicted strong momentum in the economy as consumers are willing to spend.

President Donald Trump’s tariff plan would cut the growth of U.S. gross domestic product while swelling inflation, said Yelena Shulyatyeva, senior economist. Trump said he will impose 25% tariffs on imports coming from Canada and Mexico beginning in March, while placing a 10% tariff on Chinese imports.

The effects of these tariffs, Shulyatyeva said, would be a drop of nearly 1 percentage point in U.S. GDP over the next four quarters while raising inflation by 0.6 percentage point during that same period.

“These projections don’t include potential retaliatory tariffs from these countries,” she said. “If they go back and forth with tariffs, it could increase uncertainty even more.”

GDP growth is predicted at about 1% for 2025, which could be problematic, Shulyatyeva said. At that rate, GDP growth could go into the negative range by year’s end, she noted.

Immigration boom ended before restrictions took place

An executive order by then-President Joe Biden in June 2024 significantly halted immigration to the U.S., Shulyatyeva said. Further restrictions on immigration, if enacted, would take a toll on U.S. economic growth in the second half of 2025.

“Fewer people entering the labor force and fewer people spending on goods and services – it would put another brake on the economy in our view,” she said.

Worker productivity picked up to pre-pandemic levels in recent quarters, she said. “The question is whether it continues. In the short term, probably not. But over the long term, our research shows we will see a pick-up in productivity.”

Household balance sheets are strong, and that wealth effect is boosting consumption. In addition, Shulyatyeva said, homeowner equity is at a decades-long high.

“Consumers are feeling fine about spending,” she said. Households are maintaining high spending rates while also reporting low savings rates. Meanwhile, credit card debt growth is slowing but consumers with the highest credit usage rate – known as “maxed-out borrowers” – are becoming delinquent at a rapid pace.

Shulyatyeva described the labor market as “a Goldilocks market right now.” The labor market remains in solid shape with the unemployment rate near neutral levels.

The Conference Board expects the Federal Reserve to resume interest rate cuts in the second half of 2025, with cuts of 25 basis points in July, September and December. The Fed is unlikely to reach the long-run neutral rate target range of 3%-3.25% until the second quarter of 2026.

Impacts of tariffs on economy

If the proposed tariffs on goods imported from Canada and Mexico take effect, U.S. consumers will see the earliest impacts on food and packaging materials, said Erin McLaughlin, senior economist. The Trump tariffs include a 25% tariff on steel and aluminum imported from all nations.

Nearly 70% of U.S. fresh vegetable imports and more than half of U.S. fresh fruit imports come from Mexico, she said. In addition, Canada supplies the U.S. with nearly half of the live animals used in meat production with Mexico sending an additional 28% to the States.

Aluminum and steel are vital for buildings and transportation, so tariffs on those metals will cause a rise in materials prices, McLaughlin said. Canada exports about 40% of the aluminum coming to the U.S. and 25% of the steel that enters the U.S.

“This tariff policy is to continue the encouragement of reshoring,” she said. “It will accelerate the demand for steel and we will see an inflationary environment for steel and aluminum.”

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