Are consumers having second thoughts about President Trump's policies?

The initial burst of enthusiasm among consumers after President Donald Trump's election in November has dissipated, according to the Conference Board, a think tank. The commission's “Current State” index, which asks consumers how they currently feel about their financial situation, fell slightly in December. However, the “Expectations'' index, which reflects consumers' outlook for the next six months, fell sharply. It decreased by 12.6 points to 81.1. 80 is a threshold that often signals the beginning of a recession. This was the steepest decline in more than four years.

Deloitte's outlook

But Deloitte has come to the rescue with its own economic forecasts. Deloitte is one of the Big Four accounting firms and the world's largest professional services firm.

The company's forecasting department has created three scenarios for consumers to consider, which they announced just a few days ago. The first is a “baseline” scenario, in which most of President Trump's declared policies are not expected to be implemented. This is followed by an “upside” scenario (which reflects consumer reactions to new tax cuts, increased domestic capital goods investment, and the implementation of minimum tariffs, which Deloitte calls “harmful” tariffs) . And finally, there's the “downside” scenario. This is something that most of President Trump's promises were successfully implemented in the first two years of his second administration.

“Flaws”

The “downside” scenario assumes that President Trump succeeds in imposing broad tariffs on trading partners, particularly China. It also envisions “significant” deportations of “undocumented” workers and “significant” cuts to government spending.

Also, under a “downside” scenario (some characterize this as a “best-case scenario”), Deloitte expects that economic slowdowns due to tariffs and a decline in the workforce will result in significant declines by at least 2026. We predict that a recession will occur. According to Deloitte, this recession will be similar in magnitude to those suffered in 2020 (COVID-19) and 2008-2009 (Great Recession). Deloitte writes:

Due to rising trade tensions and the continued implementation of immigration policies (by the incoming Trump administration), we expect consumption growth to remain in the red for most of our forecasts and the economy to remain depressed for an extended period of time.

Inflation will also rise, perhaps to 4% initially, as the impact of the tariffs begins to take hold, the company said.

Deloitte focused on the economic impact of mass deportations of illegal aliens and drastic cuts to government programs.

Mass deportation policies are likely to have a significant impact on industries such as agriculture and services, where undocumented workers make up a large proportion of the total workforce.

Similarly, large cuts in government spending and transfers (payments) are always net negative for the macroeconomy in the short run.

But there were some bright spots, according to Deloitte.

Housing starts will continue to decline in the last quarter of this year, but are expected to rise again to 1.4 million in 2025 as lower interest rates spur construction.

Starts will continue to rise as the economy gains momentum and interest rates fall further, the company said.

Regarding green subsidies (the misnamed Inflation Reduction Act and CHIPS and Science Act), Deloitte considers them to be safe.

House Speaker Mike Johnson (R-Louisiana) has indicated the possibility of repealing these bills, but we do not expect that to happen. Both bills are popular and benefit disproportionately to Republican districts, making it unlikely that a slim House majority would be able to secure enough votes to repeal them.

promise, promise

All three Deloitte scenarios assume that President Trump's Tax Cuts and Jobs Act, which expires in 2025, is extended. They also assume President Trump's pledge to further reduce corporate tax rates will easily pass the new Congress. As a result, Deloitte writes:

Nonresidential business investment is expected to grow by 3.9% this year, 3.7% in 2025, and another 4.7% in 2026. Business investment growth is expected to increase further in 2027 and continue rising for several years outside of (our) forecasts. .

The company is less optimistic about government budget cuts promised by the newly formed Department of Government Efficiency (DOGE). According to Deloitte, low-hanging fruit problems include:

Obamacare-related government subsidies ($120 billion annually). Department of Education (DOE, saving $255 billion annually). and “Other…discretionary spending” ($24 billion).

This $400 billion (much less than the $2 trillion promised by DOGE's next administrator) “will be implemented over fiscal years 2026 and 2027,” Deloitte wrote.

The company says the employment situation will be adversely affected as an estimated 75% of the federal workforce of more than 2 million people, made up of undocumented workers, will be laid off. In fact, Deloitte predicts that the country's total population will decline by 2028, assuming President Trump can deport the millions he promised. Demand for jobs will continue to increase as the economy recovers under the Trump administration, which will naturally keep unemployment rates at record lows.

Surprisingly, despite warnings that tariffs would cause inflation, Deloitte predicts that “inflation will continue to decline through 2025.” Furthermore, the company expects inflation to remain at an annual rate of 2% for the next 10 years.

That means the consumer anxiety reflected in The Conference Board is likely to fade as the economy recovers. That will happen as the Trump administration applies relief measures to downsize the government, cut regulations, lay off millions of government “employees,” and revitalize the energy sector.