Economic Cycle Still Has Room to Run, Even With Tariffs: Scott Colbert, Commerce Trust
Mar 11, 2025
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Scott Colbert, a chief economist at Commerce Trust, delves into the economy's resilience despite tariffs. He argues that while these tariffs may reduce growth and inflate prices temporarily, they won't cause a recession. Colbert shares insights on the aging workforce and its effects on labor markets, suggesting a stable outlook for the economic cycle over the next four years. He also highlights the renewed appeal of fixed income investments and the potential challenges facing growth stocks in the current landscape.
Despite short-term challenges from tariffs causing inflation and slower growth, the economy is expected to continue its expansion for another four years.
The labor market is facing opposing forces due to halted immigration and demographic shifts, affecting future workforce availability and economic stability.
Deep dives
Resilience of the Economy Amid Tariffs
The current economic climate, despite recent tariff impositions, suggests that the economy remains mid-cycle rather than facing imminent doom. Tariffs are primarily aimed at raising revenue and negotiating with trading partners, notably concerning issues like border control and economic security. Although the introduction of significant tariffs on imports from key partners like China, Mexico, and Canada may initially slow growth and raise inflation, these effects are viewed as temporary. Historically, the economy has shown resilience, and it is anticipated that growth will adjust and recover as businesses adapt to the new tariff landscape.
Labor Market Dynamics and Demographic Challenges
The U.S. labor market is currently experiencing two opposing forces: a significant decrease in immigration and a demographic shift that will soon reduce the working-age population. With immigration largely curtailed, the expansion of the labor force has come to a halt, potentially leading to a tighter labor market. In addition, as a result of past declining birth rates during the subprime crisis, the country faces the loss of hundreds of thousands of workers in the coming years. These factors complicate the employment landscape and may contribute to a steady unemployment rate, despite ongoing job creation.
Navigating the Future of Economic Growth
Predictions indicate that the current economic expansion could continue for another four years, reflecting a typical cycle post-recession. While the momentum seems to persist, the effects of inflation and higher interest rates are expected to temper growth in the coming years. Investors are encouraged to diversify their portfolios, moving away from tech-centric stocks and considering a balance of fixed income and value-oriented opportunities. Lastly, as the U.S. dollar weakens slightly, there may be new investment prospects in international markets, suggesting that broader diversification could yield benefits moving forward.
Scott Colbert, chief economist at Commerce Trust in St. Louis, rejoins the podcast to discuss why the economy can continue to expand even with the onset of Trump tariffs. This podcast episode was recorded on March 6, 2025 and was made available to premium subscribers exclusively the same day it was recorded. Information on premium membership is avaliable here. Content Highlights
The "Trump tariff barrage" will lead to slower growth, lower economic activity, and higher inflation -- in the short term (1:51);
Over the medium term however, tariffs should not trigger a recession, nor will they have a lasting impact on prices aka inflation (6:24);
Labor markets: Immigration has ground to a halt, but people are aging out of the workforce. Government layoffs notwithstanding, that should result in a wash (10:23);
Ultimately the economic cycle is half way through its growth stage, which should run for another four years. However this won't be great for growth stocks like the 'magnificent 7'... (15:14);
Fixed income is suddenly an attractive asset class and international stocks have tailwinds as well... (18:03);
The Atlanta Fed's GDPNow tracker is suddenly predicting a negative print for first-quarter GDP. There are logical reasons for this (24:23).