U.S. Economy This Week, March 31, 2025: Strong Consumer Spending, Business Profits. Will the Fed Spoil It?
Consumer spending and business profits have been strong, but interest rates may be trending up--a bad sign. Ph.D. economist Bob Genetski guides you through with a quick, commonsense analysis.
Guest post by economist Robert Genetski, Ph.D.
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Friday’s report on February consumer spending and incomes showed the economy continuing to move ahead at a strong rate. Also, the Fed’s favorite inflation measures were much higher than expected, with monthly annualized increases of 3¾% for both the total and core prices.
The recent increase in longer-term interest rates is a big concern. As the chart shows, technical indicators recently have shifted longer-term interest rates to neutral. This is
a reversal from the downward rate momentum in recent weeks:
This rate shift is likely related to concerns over tariffs pushing inflation higher.
There was some encouraging news this week, with the Senate finally moving to increase the odds of a major tax cut. The progress involves a technical issue which uses the current policy baseline as a starting point, allowing easier passage of major tax reform. [My article tomorrow will be on that subject—STK]
Still more good news could occur on Wednesday when Trump attempts to clarify his tariff policy. We expect Trump to report agreements with India, Japan, Mexico, Ireland, the UK, and several Asian countries, all of whom have agreed to reduce
barriers to U.S. businesses.
Trump also will reserve major tariffs for the EU and Canada if they continue to reject calls to ease their existing restrictions on US businesses. Europe and Canada should soon join the rest of the world in reducing barriers and support US efforts to promote freer trade.
Thursday’s GDP report showed profits soared in the fourth quarter. As a result, GDP measured from the income side increased at a 6.9% annual rate. This compares to a 4.8% rate when measured from the spending side.
Such quarterly discrepancies tend to be reconciled over time. For the past year, the spending side measure is up 5.0% while the increase from the income side is up 5.2%.
Tomorrow’s business manufacturing survey reports for March will probably show manufacturing remains close to break-even, with a reading near 50. Wednesday, Trump will resolve some of the issues with tariffs and hopefully will present a clear path forward for further progress.
Also on Wednesday, ADP will release the monthly payroll numbers for March. We expect them to show that job growth slowed to only 60,000, down from 77,000 in February and significantly below the average of 166,000 over the last six months.
Thursday’s business surveys for service companies are also likely to show moderate growth, with index numbers close to 52 to 53. These numbers would confirm that the economy continued to grow in the first quarter.
Friday’s March payroll report should begin to capture the impact of the firing of federal workers. As a result of the reduction in government workers, we are speculating that total payrolls will be up by only about 60,000. However, private payrolls are likely to have increased by closer to 100,000.