March 2025 Economic Forecast: Signs The Economy Is Slowing - More Recession Flags

Some economic slowing in the coming months

EconCurrents‘ Economic Index declined. There are several new recession flags but we continue forecasting no recession in the near term. Read on to understand the currents affecting our economic growth.

Overview of this Economic Forecast

This post will summarize the:

• special indicators,

• leading indicators,

• predictive portions of coincident indicators,

• review of the technical recession indicators, and

• interpretation of our index – EconCurrents Economic Index (EEI) – which is built of mostly non-monetary “things” that are indicative of the direction of the Main Street economy at least 30 days in advance.

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President Donald Trump has outlined several policy proposals and early actions in his second term that are intended to impact the U.S. economy. Based on his campaign promises, statements from his administration, and initial executive actions, here are the key changes he is pursuing that could shape the economic landscape in both the near term and long term:

1. Tax Cuts and Extensions:
   Trump aims to extend and expand the Tax Cuts and Jobs Act (TCJA) of 2017, set to expire at the end of 2025. This includes maintaining lower individual tax rates, increasing the standard deduction, and keeping the corporate tax rate at 21% or reducing it further to 15% for companies producing domestically. He has also proposed eliminating taxes on tips, Social Security benefits, and overtime pay, alongside offering new tax credits, such as one for family caregivers. These measures are intended to boost disposable income and incentivize domestic production, though economists warn they could increase federal deficits by trillions over the next decade if not offset by spending cuts or new revenue.

2. Tariffs and Trade Protectionism:
   A cornerstone of Trump’s economic agenda is imposing significant tariffs on imports to protect American industries and reduce trade deficits. He has already signed an executive order for 25% tariffs on steel and aluminum imports, effective early 2025, and proposed broader tariffs: up to 60% on Chinese goods, 25% on imports from Canada and Mexico (though temporarily paused), and a universal tariff of 10-20% on all other imports. These policies aim to bring manufacturing jobs back to the U.S., but they could raise consumer prices and provoke retaliation from trading partners, potentially fueling inflation.

3. Deregulation:
   Trump has emphasized reducing regulatory burdens to stimulate economic growth. Early actions include executive orders to expedite environmental approvals for energy projects and roll back efficiency standards on appliances, signaling a broader push to ease restrictions on industries like energy, manufacturing, and finance. His administration claims this will lower costs and boost investment, though critics argue it might increase long-term risks, such as environmental damage or financial instability.

4. Energy Production and Cost Reduction:
   Trump has vowed to increase domestic fossil fuel production—oil, gas, and coal—by cutting drilling permit approval times and expanding output to make the U.S. a dominant global energy producer. He claims this will halve energy costs within his first year, aiming to reduce inflation. However, global energy markets and external factors may limit the extent of price drops, and some analysts suggest these policies could conflict with inflation goals if paired with tariffs.

5. Immigration and Labor Market Changes:
   A key pledge is the mass deportation of undocumented immigrants, estimated at 8-11 million, many of whom work in sectors like agriculture, construction, and hospitality. This could shrink the labor supply, potentially raising wages in some areas but also increasing costs for businesses and consumers if jobs go unfilled. Economists note that past immigration has helped moderate inflation by expanding the workforce, so this policy might counteract efforts to lower prices.

6. Government Spending and Deficit Management:
   Trump has tapped Elon Musk to lead efforts to cut government waste and reduce federal spending, alongside plans to establish a U.S. sovereign wealth fund to enhance fiscal sustainability. His Treasury Secretary nominee, Scott Bessent, has highlighted re-privatizing parts of the economy and reducing government reliance. However, tax cuts and tariffs may widen deficits unless paired with significant spending reductions, a challenge given rising costs for Social Security and Medicare.

7. Monetary Policy Influence:
   Trump has expressed a desire to influence Federal Reserve decisions, advocating for lower interest rates to spur growth. While he cannot directly control the Fed, he could pressure it through appointments or public statements. This contrasts with the Fed’s current stance of managing inflation, which remains above its 2% target, and could lead to tension if his policies drive price increases.

These changes carry trade-offs: tax cuts and deregulation might stimulate short-term growth, but tariffs and deportations could raise costs and disrupt supply chains, potentially reigniting inflation. The net economic impact will depend on how these policies are implemented, the response from Congress (where tax and spending measures need approval), and global reactions, all of which remain uncertain as of now.

Many of the above items are likely negotiating positions. Others require congressional action which is unlikely in the near term. Others are simply reorganization and would have a marginal economic impact. Others are long-term changes that would not affect this economic forecast. Right now, the only drag on the economy is declining consumer confidence. Lowering taxes is positive for the economy. Items that increase debt will fuel inflation. But the elephant in the room is tariffs - which can have immediate negative effects.

So this economic forecast is based only on the existing tariffs currently in effect on steel and China - as well as the 10,000 other tariffs in the Harmonized Tariff Schedule (HTS). We have not included the effects of the tariffs on Mexico and Canada.

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Economic trends remain unchanged until a new force acts on them. Except for “black swan” events, economic change is relatively slow and gradual.

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The economy continues to be stratified with some sectors going gangbusters, other sectors barely above recessionary levels, whilst other sectors are in recession territory. This stratification became noticeable after the Great Recession of 2007 - especially with the extraordinary monetary policy (quantitative easing) caused the economy to act differently than historical benchmarks would suggest.

I am reminded that recession indicators are based on models produced using historical data – and significant annual revisions by the US Census, BLS, and the BEA change how we interpret the data. The bottom line is that we can never fully trust current data or trend lines as correct. Let’s say that all forecasts are no more than quantified opinion.

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The Federal Reserve has made three recent reductions to the federal funds rate. The private sector borrowing rates have changed a little suggesting it was premature to reduce rates. EconCurrents follows the Federal Reserve Bank of Atlanta’s Underlying Inflation Dashboard which uses data from the US Bureau of Economic Analysis, the Federal Reserve Bank of San Francisco, and the Federal Reserve Bank of Dallas. Inflation has modestly declined earlier this year but, interestingly, the downward movement in some of the measures of inflation released in September, October, November, December, January, and February 2025 were mostly matched by upward movement of others. Inflationary pressures remain high - and inflation continues to impact any economic forecast.