During last year’s client survey, the economy was the top concern for many clients. It’s also the key topic for today.
Before diving into the details, here are two friendly reminders:
#1—Take a long-term view when assessing the economy, markets and stocks.
#2—Question headlines. Economic news is often exaggerated for clicks. Verify sources and take breaks from news and social media if it feels overwhelming.
Today, we discuss:
– The economy, including the labor market, corporate profits and consumer sentiment.
– Trump’s tariffs—the “real” impact.
– How Windsor Wealth Management responds to economic uncertainty.
The U.S. Economy Is a Mixed Landscape
Labor Market
The labor market remains strong, with employers adding 143,000 jobs in January, bringing the unemployment rate down to 4% (from 4.1% in December).
However, job growth pace is slowing.
U.S. Growth
Capital Group economists predict U.S. Gross Domestic Product (GDP) growth will reaccelerate to 2.7% in 2025.
The global investment firm believes strong corporate earnings and rising incomes will keep job growth and spending steady. Although, inflation will likely remain stubborn, keeping interest rates higher for longer.
For comparison, the U.S. economy’s GDP rose 2.8% in 2024, slightly below 2023’s 2.9% growth.
In general, the new White House administration is creating uncertainty, which is to be expected.
Corporate Profits
Business earnings are expected to grow at a steady 10-11% in 2025, aligning with historical long-term averages, according to analysts.
This level of profitability suggests businesses are maintaining resilience despite shifting economic conditions, providing a stable foundation for investment and growth.
While challenges such as inflation and interest rates remain factors to watch, these projections indicate a healthy corporate landscape moving forward.
Consumer Sentiment
Consumer sentiment decreased in early 2025, according to the preliminary University of Michigan Index of Consumer Sentiment.
The index dropped to 67.8 in February, down from 71.1 in January, reflecting growing concerns about inflation and its potential economic impact.
Exactly what is this index and why does it matter?
It’s like a mood ring for the economy.
The university surveys consumers every month to gauge how optimistic or pessimistic they are about the economy.
They ask people questions about things like:
- How they feel about their current finances.
- What they think about the economy in the short term and long term.
- Whether they think it’s a good time to buy big things like appliances or cars.
This index is important because it gives us clues about where the economy is headed.
Of course, it’s just one of the many factors to consider.
Decreasing Consumer Sentiment Impact
When consumer sentiment declines, it can create a negative feedback loop.
It looks like this:
When people are worried about the economy, they often spend less.
They might postpone big purchases (e.g., new bedroom set) or cut back on non-essential spending (e.g., dining out).
This decrease in consumer spending can lead to:
- Slower Economic Growth: Consumer spending drives the economy. In fact, it’s two-thirds of the economy. A pullback hurts business sales and jobs.
- Risk of Recession: A prolonged drop in consumer spending can contribute to an economic downturn.
- Business Uncertainty: Companies may delay hiring or investment if they see weaker demand ahead.
Overall, pessimism leads to less spending—slowing growth—which fuels more pessimism and further spending cuts, i.e., a negative feedback loop.
This drop in consumer sentiment is not surprising. Households have been feeling pressure from inflation and increased prices for months now.
Trump’s Tariffs—The “Real” Impact
Let’s start with some background…
In early February, President Trump imposed new tariffs on imports from Canada, Mexico and China, citing a national emergency related to illegal immigration and the flow of fentanyl into the U.S.
These tariffs include a 25% increase on imports from Canada and Mexico, and a 10% increase on imports from China. Energy resources from Canada will have a lower 10% tariff.
The administration says these measures are necessary to pressure these countries into taking stronger action against illegal immigration and drug trafficking, according to a White House fact sheet.
Canada and Mexico:
Both countries initially announced 25% retaliatory tariffs on U.S. goods. However, after negotiations they agreed to delay them for 30 days.
As part of the agreement, Canada committed to appointing a “fentanyl czar” and enhancing border security, while Mexico agreed to deploy 10,000 National Guard troops to its northern border to curb drug trafficking and illegal immigration.
China:
China has retaliated, imposing a 15% tariff on U.S. coal and liquefied natural gas, as well as a 10% tariff on crude oil.
IMPACT: Key U.S. Imports
The U.S. relies on key imports—horticultural goods from Mexico (e.g., fresh fruits and vegetables) and energy from Canada. Canada supplies almost 20% of U.S. oil supply and more than half of total U.S. oil imports.
The most direct impact of tariffs is higher costs for imported goods, which can drive up prices for consumers.
When it comes to tariffs, is the media providing the full picture?
No.
Tariffs have an impact, but it’s important to keep perspective.
Specifically, 85% of U.S. GDP comes from domestic activity—leaving only 15% tied to trade.
What’s more, about half of the 15% comes from China, Canada and Mexico, effectively reducing the 15% by half, softening the overall tariff impact.
Candidly, the tariff situation is still unfolding and is highly fluid.
The uncertainty isn’t surprising, however, given that tariffs were a key focus of the new administration’s campaign.
How Windsor Wealth Management Responds to Economic Uncertainty
While we provide many services for our clients, helping you navigate uncertainty is a critical focus. Economic and market uncertainty increases financial risk, making decision-making more challenging.
That’s why we take a disciplined, research-driven investment approach—one that prioritizes long-term strategy, risk management and adaptability.
How do we do this?
By diversifying portfolios to reduce unnecessary exposure to volatility, actively monitoring market conditions and relying on deep, unbiased research to guide our decisions.
In today’s landscape, with shifting government policies, tariffs and geopolitical changes, staying informed and maintaining a structured investment process is essential to managing risk and seizing opportunities.
–David Bunker, Financial Advisor & Licensed Fiduciary
Before You Go
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This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.
