Less Dumb Investing

I hate calling for recessions. In fact, I’ve got a reputation among those who know me as a perma-bull. Yet, it’s hard to ignore the immediate effects that Trump’s tariffs are having on the market. And the tariffs are just one component of this proverbial iceberg. We should see a surge in unemployment as DOGE takes an ax across several US industries.

The easier story to conjecture about is DOGE. If we take a simplistic view, we can just account for the job losses as the main economic impact. One worker laid off is equal to one smaller GDP contributor. But there are other effects that we need to consider as well. You have the slipstream effects where a worker who doesn’t generate a primary income is less likely to spend on travel and luxury items. They are less likely to spend on cars, homes, decks, or any big-ticket items. Savings becomes a primary consideration, which is part of the GDP equation but does not really lead to downstream effects.

But we’ve only talked about the workers who are laid off. What about the workers whose budgets have been cut so they can’t travel around the US doing their functions? We have lower gas consumption, airline travel, hotel bookings, and restaurant use among these employees. In turn, the services and workers who rely on those employees have to spend less than they otherwise would. That leads to expanded downstream effects of reduced spending and higher savings, but the savings are coming from an income base that is reduced.

So that’s not ideal. But what about tariffs?

I’ve heard a couple of purely anecdotal stories from homebuilders. I have to stress that I’ve heard a couple of purely anecdotal stories from homebuilders. I have to stress that they are anecdotal and not based on any large-scale sample source. Effectively, Trump policies are hurting them two ways:

1. Tariffs increase the cost of materials and the barriers needed to get them.
2. Deportations have reduced the availability of cheap labor.

These two factors combined have created some serious uncertainty within the homebuilders’ market. The two individuals I spoke to are both homebuilders; one owns his firm, and the other is a secondary marketing manager for capital markets for his firm.

The individual who owns his firm has had projects fall through that were slated to break ground in June and later this year. His customers are wary, and they aren’t as confident in spending. The increase in raw materials cost cannot be accurately estimated, so his profit margins are in jeopardy. He is considering his options: does he eat the costs, or does he cancel the projects in anticipation of lower profits or even losses on the builds?

The secondary marketing manager has more systemic evidence. They are hearing from clients that they are unable to build. Costs are expected to be 10% higher, which can be substantial when your homes are already north of $1M. The labor force is scared to go into work due to risks from ICE, and there’s nothing they can do about it.

These stories affect manufacturing, not services in the GDP equation. For all we can tell, services remains robust.

But I’ve provided just a single industry from the perspective of two individuals. This is not enough to make a conclusion, just to identify patterns in a trend. There are other stories floating out there, but nothing seems to really imply the recession has started. So has one? Maybe.