After months of warning signs, the U.S. economy seems to have slipped into recession - defined as two straight quarters where GDP growth is negative. The Federal Reserve recently changed its GDP growth projection for Q1 to -2.4 percent. As Trump and Musk pause, block, and eliminate tens of billions in government spending, including government jobs, the economic over-stimulus from the Biden-COVID days is being systematically unwound.
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On a recent podcast, Musk stated the Federal budget, including entitlements, looks like a $1 trillion dollar scam. The estimate includes $100 billion in annual social security fraud.
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This isn't the first time the U.S. government has been accused of fraud. A report put out during the Biden administration by a Congressional agency, the GAO, estimated that the federal government loses between $233 billion and $521 billion annually to fraud. That is larger than the budgets of all but two government agencies yet would account for 28% of the $1.8 trillion dollar FY24 federal deficit (the different between revenues and expenses).

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Pulling that much money out of circulation will have a ripple effect on the economy quite rapidly. It's already having an impact on the Washington D.C. housing market, with existing homes for sale increasing rapidly over the past few weeks. Likewise, there's been a huge spike in the D.C. area of Google searches with the words "criminal defense attorney" over the past 30 days.
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With consumer sentiment slipping by 10% and tariffs rising, consumers and businesses will likely pause or pull back on spending, further eroding GDP.  Private consumption accounts for about 68% of U.S. GDP.

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Despite these budget cuts, some good news has been coming in. The Trump administration is securing large amounts of new investments into the U.S. economy. Apple recently agreed to invest a half trillion dollars to reshore some of its manufacturing in Texas. Softbank, the word's largest venture capital fund, will invest $100B into US AI startups and infrastructure to create 100K tech jobs over the next 4 years. Nippon Steel, also from Japan, shifted from a blocked $14.9 billion acquisition to investing in U.S. Steel, with Trump stating in February 2025 they would "invest heavily" instead of purchasing, though the exact amount remains unspecified.
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The impact of these investments will be slower than the impact from the Trump/DOGE cuts, however. And data is showing this. The February jobs report, while slightly stronger than January’s dismal figures, confirmed that job growth is decelerating. Only 151K jobs were added, missing expectations. The unemployment rate ticked up to 4.1%, with retail, manufacturing, and government sectors shedding jobs.
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Many market pundits are saying that the Federal Reserve remains trapped, unable to cut rates as inflation remains stubbornly high due to tariff-driven price pressures. However, the Fed's other mandate - maximizing employment - will take priority over inflation killing if the unemployment rate continues rising. With the Trump administration causing fear in markets and cutting spending rapidly, we're more likely to see additional fed rate cuts than believed just a few months ago.
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Markets have responded accordingly. The S&P 500 erased all gains since Trump’s re-election, while bond markets are flashing distress signals. A Reuters poll found that 70 out of 74 economists now expect recession conditions to deepen, with U.S., Canadian, and Mexican economies all under pressure from the chaotic implementation of Trump’s tariffs. With corporate investment on pause, consumer confidence decreasing, and inflation sticky, all eyes are on how the White House chooses to spin the downturn.
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The S&P 500 sectors experienced a broadly negative week, with Financials leading the declines at -5.9%, followed closely by Consumer Discretionary (-5.4%) and Information Technology (-3.4%), signaling weakness in growth-oriented sectors. Energy (-3.8%), Telecom (-2%), and Industrials (-1.6%) also faced notable losses, reflecting broader market caution. Utilities (-2.4%), Consumer Staples (-1.5%), Materials (-1.2%), and Real Estate (-1.7%) saw declines as well, suggesting defensive sectors failed to provide much of a safe haven. Healthcare (+0.2%) was the sole gainer, showing resilience amid market volatility as the VIX rose 20% over the week.  
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Among industries, stand outs were the goldminer stocks, which rose +5%, and regional bank stocks, which fell -7%. Homebuilder, agricultural, and solar stocks all were slightly positive with everything else ending down for the week.

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