A Bad Friday for US economic reports

We now have more proof that the economy hit the skids in January, with consumer spending going down, even as Americans got a solid starting-year boost in their wallets.

The Federal Reserve's preferred inflation gauge eased modestly last month, data indicated Friday, but personal spending figures showed one of the biggest pullbacks in three years, suggesting further weakness in the world's biggest economy….

The BEA's headline PCE inflation index quickened to an annual rate of 2.5%, matching Wall Street's estimate and slightly below the 2.6% pace recorded in December. The BEA said prices rose 0.3% on the month, following a 0.3% reading in December.

The BEA also noted that personal incomes for January rose 0.9%, more than double Wall Street's estimate and the 0.3% forecast, while spending slumped 0.2% compared with the 0.7% advance in the prior month.

A slowdown in consumer spending, which was also evident in the Commerce Department's January reading of retail sales, is crucial for an economy that relies on the services sector for around two-thirds of its growth.

An even bigger drag on growth came with another report on Friday, which showed a massive boost in imports ahead of Trump taking office, which led to a big jump in the trade deficit for goods.

The U.S. trade deficit in goods widened sharply in January, most likely as businesses front-loaded imports ahead of tariffs, potentially positioning trade to be a drag on economic growth in the first quarter.

The goods trade gap surged 25.6% to $153.3 billion last month, the Commerce Department's Census Bureau said on Friday. Goods imports vaulted 11.9% to $325.4 billion….

On Thursday, Trump said a 25% tariff on Mexican and Canadian goods would take effect on March 4, after being delayed for a month, along with an extra 10% duty on Chinese imports, on top of 10% already imposed. Other duties aimed at imported steel, aluminum and motor vehicles will either soon go into effect or are in fast-track development.

Looking at the report that goes over the trade in goods, it looks like the biggest front-running was done in industrial supplies (up nearly 33% in January vs December!), but there was also a $4 billion increase in imported capital goods, and nearly $6 billion more in consumer goods.

That huge jump in imports without a corresponding increase in exports also subtracts from economic growth, and combined with January’s drop in consumer spending that we’ve now seen for both retail sales and this spending and income report, and the Atlanta Fed had a stunning change in how things look for Q1 so far.

Sure, a lot of this is based on the trade imbalance deducting 3.7% from the GDP totals. But the Atlanta Fed’s estimate for consumer spending growth’s boost to the economy has gone down by more than 2/3 as data has come in throughout February. And this January data was before the Trump/Musk layoffs and chaos hit the federal government and its contractors.

So as March dawns, it seems unlikely that the economy is doing much to reverse the downward track that it was on in the first month of 2025. If we get honest data in the coming weeks that shows February was as bad as January (that’s a definite if with this crew) , when do we start seeing demands to do something about a coming recession? And for Trump/GOPs to pay an increasing price for the reckless austerity and trade policy that upended what was a solidly growing economy in late 2024.

And oh yeah, have I mentioned that the government is slated to shut down with the debt ceiling being breached in 2 weeks? GOOD TIMES!