Mounting Evidence of Anemic Economic Growth

After solid growth in 2024, the U.S. economy contracted by 0.3% in the first quarter, according to the advanced GDP report released by the Bureau of Economic Analysis. This confirms recent warning signs that economic momentum is fading.

The Fed's latest Beige Book survey revealed stagnant growth across the country. April's edition – the first reflecting recently implemented broad tariffs – mentioned "tariffs" 107 times, more than double the previous report. The survey found "pervasive" uncertainty clouding the economic outlook, with many businesses postponing hiring due to tariff concerns. Price increases were widespread, with companies anticipating tariff-driven cost hikes.

Tourism has weakened both domestically and internationally. The U.S. Travel Association reported inbound visitors to the U.S. dropped 14% in March compared to last year. Southwest CEO Bob Jordan recently stated the travel industry is already experiencing a recession – comments made as Southwest joined Delta, Alaska and American Airlines in withdrawing their annual guidance due to economic uncertainty.

Consumer spending shows troubling signs as well. Pepsi (owner of Frito-Lay) lowered its guidance as consumers cut back on snack purchases. A recent LendingTree survey revealed 25% of Buy Now, Pay Later (BNPL) users are using this financing for groceries, while 33% use it to bridge gaps between paychecks. BNPL allows customers to purchase items and pay in installments rather than upfront.

Alarmingly, 41% of BNPL users reported late payments in the past year, yet 50% plan to use these services in the next six months. These statistics highlight consumers under financial stress, burdened with debt, and likely with minimal discretionary spending capacity. With consumer spending comprising nearly 70% of GDP, continued slowdown could lead to further weak growth or even recession.

While recessions damage the economy, they often deliver a silver lining: lower interest rates that can boost home values. According to the Case-Shiller Home Price Index, real estate values increased both during and after economic downturns in six of the last seven recessions.

So even though economic uncertainty may be on the horizon, history indicates the housing market could remain strong if a recession occurs.

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By Shelly Williams