Hey, Economists, Where Is the Trump Recession?

Looking ahead to the July-September period, the Atlanta Federal Reserve’s GDPNow Model, a widely watched running growth estimate by the regional central bank, suggests a 3.8% expansion. The blockbuster growth is expected to be fueled by another increase in consumer spending, net exports, and nonresidential fixed investment, which are factors that the administration would want to see.

Once again, government outlays will account for a smaller slice of the projected final GDP reading, totaling 0.3%. By comparison, government spending accounted for 0.84% of the economy in the third quarter of 2024 and 0.73% in the third quarter of 2023.

It would not be surprising if comparable numbers were observed in the final three months of 2025. One reason is the momentum in capital expenditure, or capex, spending this year.

This past summer, Treasury Secretary Scott Bessent referenced the "capex comeback" as private-sector investments rocketed. Capex is a vital indicator of the economy's future, as it assesses companies' spending on purchasing, upgrading, or maintaining physical assets to ensure long-term productivity. In the first and second quarters, capital expenditures soared at an annualized pace of 23% and 11%, respectively, representing the first back-to-back quarterly boost in three decades. Market watchers expect another three months of capex growth, partly due to the One Big Beautiful Bill's 100% first-year depreciation for qualified assets.

Capex could remain the top signal for years to come as the country has attracted trillions of dollars in public and private investment at home and abroad. If even half of these commitments from tech giants, pharmaceutical juggernauts, and automakers come to fruition, the nation would continue swimming in cash.

While inflationary pressures have been gradually building, with the headline annual inflation rate rising to 2.9% in August, they have been modest at best and could peak by year’s end or early 2026.

The primary concern, however, is that the US labor market has been deteriorating rapidly. From the Bureau of Labor Statistics’ downward revisions to ADP’s back-to-back negative readings, employment conditions could erode from the current “low fire, low hire” environment at a fast and furious pace.

The best description of America’s current economy? Hot.

Economists Get It Wrong

Torsten Slok, chief economist at Apollo Wealth Management, presented a damning indictment of the economics profession. In an Oct. 1 note, titled "We in the Economics Profession Need to Look Ourselves in the Mirror," Slok opined:

"The consensus has been wrong since January. The forecast for the past nine months has been that the US economy would slow down. But the reality is that it has simply not happened … GDP growth in the second quarter was 3.8%, and the Atlanta Fed predicts that GDP in the third quarter will be 3.9%. Yes, job growth is slowing, but this is the result of slowing immigration.

"The bottom line is that the US economy remains remarkably resilient, and it is becoming increasingly difficult to argue that we are still waiting for the delayed negative effects of what happened six months ago on Liberation Day in April."

Will the United States eventually see the consequences of sweeping tariffs? Will consumers' wallets start bearing the brunt of levies? Can the US labor market reverse its deterioration once uncertainty dissipates? Perhaps. For now, Trumponomics is running like a locomotive through a crowd of economists.