Is the US Heading for a Recession Under Trump and Musk?
As the far-right broligarchy takes an axe to the federal government, and job losses mount, the signs of an impending downturn are clear.
A note from the editor:
This is Grace’s second ‘Billions’ column for us since coming on board as our new economics contributor, and it is on a topic that is of huge importance but is getting very little coverage. Is a recession around the corner? What does the evidence suggest? Please do make sure you are a paid subscriber to Zeteo so you can read Grace’s columns in full, without any paywalls, and support independent journalism. Thanks
- Mehdi
The US has been the world’s star economic performer over the past few years.
Donald Trump was lucky enough to inherit a booming economy from Joe Biden. Robust growth. Low unemployment. Strong corporate profits.
The S&P 500 has experienced significant gains since 2020, delivering returns exceeding 20% for two consecutive years in 2023 and 2024. The last time that happened was in the 1990s.
But if you take a look below the surface, all is not as it seems. The S&P 500 is more concentrated now than it has ever been. The top 10 companies account for 37.3% of the index. Twenty-six stocks now account for half of the value of the entire S&P 500.
The leaders of the pack are, of course, the Big Tech companies. Apple, chip-maker Nvidia, and Microsoft account for nearly 20% of the value of the S&P on their own.
These companies, in many ways, are responsible for keeping the US economy afloat. One analyst for the Financial Times called this situation “the world’s biggest game of Jenga.” If a few of these companies got into trouble, the results for the US economy – and the world – would be disastrous.
So, the US economy might look like an unstoppable juggernaut, but it’s far more fragile than it seems. And it doesn’t take much political instability to break a fragile economy – just ask those of us living across the pond.
Musk and Tump’s Chainsaw Gamble
In this context, then, Elon Musk’s decision to take a chainsaw to the US administrative state, enthusiastically backed by Trump himself, is a very risky one.
Optimism around the US’ economic performance hinges on jobs. In January, the US economy created 143,000 jobs – somewhat short of expectations but still robust. This comes on the back of a bumper figure of 307,000 new jobs in December.
Trump is planning massive cuts to government payrolls, and thousands of workers have already been fired. Tens of thousands more have taken voluntary redundancy. He is also targeting the more than 200,000 government employees still working in their probationary period.
If all goes to plan, hundreds of thousands of jobs could be lost across the public sector. That would probably be enough to put job creation into negative territory.
The monthly jobs report is a very important event in the US economic calendar. Even if stock markets are booming, a poor jobs report can dampen the economic outlook.
When investors see a bad jobs report, they think that corporate executives are holding off on hiring because they’re pessimistic about the future. This can create a self-reinforcing cycle. Unemployment hits consumer confidence, which is already plummeting, so businesses hold off on investment, potentially leading to further job losses.