Chart of the Week

First-quarter U.S. economic weakness can be attributed to a combination of factors, including payback for a strong finish to 2024, frigid weather, extreme California wildfires, and unusually elevated policy uncertainty. Unexpectedly aggressive tariff increases pose a strong headwind, likely putting further pressure on the economy in the near term.

However, as the chart above illustrates, consumer spending remains underpinned by solid job growth and real (inflation-adjusted) disposable incomes that have steadily accelerated since last fall, cushioning consumer purchasing power. In our view, the economy can be kept afloat by other key drivers of consumer and business spending, which we discuss in more detail in our latest Investment Strategy report.¹

Although we expect this year’s economic growth to be noticeably slower than last year’s, we envision growth nonetheless and believe the U.S. economy can skirt a recession. We view the latest equity-market pullback and bond-market rally as an opportunity to reallocate cash and position portfolios for stronger economic growth later this year.

¹ For more detail, see our Investment Strategy report, “U.S. economy capable of weathering the storm,” April 7, 2025.

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