PALM SPRINGS, CALIF. — The economy feels more fragile lately. Even after clawing its way through a financial crisis following a global pandemic five years earlier and with the 2024 US presidential election of Donald Trump, who campaigned on promises to bolster the country’s economic status, the financial standing of the United States seems to be teetering on a precipice that is at the mercy of stubborn inflation, tariff threats and recession fears, according to one economist.

“America has been growing much faster than the rest of the planet post the pandemic,” said Scott Colbert, executive vice president and chief economist at Commerce Trust, during the economic outlook session at the recent International Sweetener Colloquium. “But we did it the old-fashioned way where we borrowed our way to prosperity. Our government spends $7 trillion, but it only takes in about $5 trillion. And of course, you can’t do this forever if you’re a business.”

Colbert told the record-number of attendees at the Colloquium that the United States still was trying to dig itself out from the burden of inflation due to the stimulus efforts pumped into the economy to help spur its recovery, mainly through the application of Federal Reserve policies and interest rate management. But while efforts from the Fed have slowed this past year and growth in the US economy has begun to wane, Colbert said this is not a cause for concern nor is it a sign the Fed’s goal for a soft landing has been deterred but rather an indication that the economy is starting to normalize.

“The GDP has been cooling,” he said. “It was 2.9% two years ago, 2.7% last year, and I’m estimating it will be 2% this year. We’re already tracking at 2.3%. But the average economic recovery from the post-subprime crisis to the pandemic was about 2.1%. So, we’re basically getting back to cruising speed.”

A slowing economy can quickly stir up recession fears, but Colbert said most of the economic deceleration appeared in companies’ decisions to delay building construction and other expansion projects, but company profits generally remain strong. And while employment growth also has stalled, there haven’t been mass firings in the private sector, which tends to be the primary precursor before a recession starts.  

“Job openings are down by a third from where they were during their peak, but the quit rate has declined materially,” he said. “People are quitting less today than they did pre-pandemic. And the wage and salary growth has cooled. These are all signs that employment is slowing, but it’s not negative, and you’ve got to have negative job growth to get to a recession.”

Colbert said it will be interesting to see how the recent downsizing in the government labor pool will impact the monthly Employment Situation Summary, commonly referred to as the jobs report. He said it’s unlikely that the unemployment rate will significantly rise since the main reason the unemployment rate rose over the last two years was due to the large volumes of immigrants coming into the country and looking for work, but this specific data point has sharply declined. And rather than a sign the economy was heading toward a recession, Colbert attributed the government layoffs to strategies implemented by the Department of Government Efficiency (DOGE) to help shrink the government’s national deficit.   

“This DOGE thing, while it sounds crazy and nutty, is especially important to get this deficit down and under control because we aren’t going to be able to tax our way up,” he said. “It’s got to come from the spending side, which has to come down.”    

But despite the DOGE efforts and signs the economy might be trying to normalize, Colbert said the deficit and inflation may continue to rise, particularly if President Trump’s tax cut policies are passed later this year, which will limit federal revenue as well as postpone further interest rate cuts from the feds.

“The market is forecasting that by the end of the year, there will be two interest rate cuts for 25 basis points to bring the Fed back to neutrality,” Colbert said. “Because they don’t think we’re going to make a lot of progress on inflation this year. You’re going to have to work through all the Trump fog before you can begin to make some progress on inflation next year.”

Another factor keeping the current inflation atmosphere stickier than usual is the tariff situation. Since January, the Trump administration has engaged in on-again, off-again tariffs with Mexico and Canada, its two largest trading partners, while implementing two traches of 10% tariffs on China, the country’s third-largest trading partner.

“Trump is trying to use the tariffs for leverage to get what he wants,” Colbert said. “For Mexico, we know he wants a tighter border and less fentanyl crossing the border. From Canada, he wants less lumber imported and he wants less of the gas coming from the Canadian oil sands, and he wants an auto assembly plant brought back to this country. There are seven auto assembly plants in Canada. He would like to grab some of those jobs back to this country, thus the leverage on Canada. With China, he wants economic security. We can’t depend upon our frenemies for all the stuff we import. So, he’s trying to strategically reduce our dependence upon places that aren’t likely to provide those imports when we might need them most. And he’s trying to raise some revenue to close the deficit and to pay for his tax cut and job act extension.”

One major concern with the tariffs is their potential to inflate prices for US consumers, which would sustain higher inflation rates, delay further interest rate cuts and potentially slow the economy to a point of recession. But so far, these concerns have not yet materialized. On the morning of March 12, the Labor Department said inflation in February had eased to 2.8%, down from 3% in January and lower than most analysts were expecting.

Still, the general economic outlook remains unclear, given the uncertainty surrounding tariffs, the overall impact on the federal employment downsizing and the deepening strain with the country’s primary trading partners.