The article discusses the impact of federal government cutbacks under the Trump administration on consumers who rely on government income, including employees and contractors. Experts suggest that these cutbacks could lead to reduced consumer spending. Although soft data like sentiment surveys indicate caution, hard data shows little immediate deterioration in spending or hiring. Treasury yields have dropped, signaling investor concerns. Economists are closely monitoring data for potential shifts in the business cycle while theorizing about recession risks amid elevated uncertainty.
"With 3 million federal employees potentially worrying about their jobs and 6 million federal contractors worrying about their jobs, the risks are rising that households may begin to hold back purchases of cars, computers, washers, dryers, vacation travel plans, etc.," wrote Torsten Slok, chief economist at Apollo Global Management, in a note out Thursday morning.
"We remain bullish on the economic outlook, but we are very carefully watching the incoming data for signs if this is an inflection point for the business cycle," he added.
Kansas City Fed president Jeff Schmid said in a speech Thursday morning that "discussions with contacts in my district, as well as some recent data, suggest that elevated uncertainty might weigh on growth."
"As US data soften, clients have started asking us about the prospect of a US recession," wrote Barclays' Ajay Rajadhyaksha and Marc Giannoni in a note Wednesday. "We think the odds are still low, but have clearly risen."
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