Consumers face rising prices, slowing growth, weak housing, shrinking benefits

(Originally published June 19 in “What in the World“) Trump’s policies are creating stagflation.

The members of the Fed’s open market committee yesterday released a lower projection for U.S. economic growth this year—a meager 1.4%. Back in March, they were predicting 1.7% growth. Despite this darkening outlook, they left their key benchmark interest rate unchanged, because they also predict higher inflation—3%, up from 2.7% in March.

Signs continue to emerge, meanwhile, that Trump may be on the verge of defeating the U.S. consumer. Retail sales in May fell 0.9% from April, the second consecutive monthly decline and the largest such drop in two years. But consumer spending was 3% higher in May compared to the same month of 2024. The monthly decline may still augur ill for the U.S. economy, especially because it came with a side of weakening industrial production, which fell 0.2% in May.

The latest data adds to other signs the American household may be, well, spent. As detailed in this space last month, delinquencies rose 3.6% in the first quarter of the year compared to the last three months of 2024, to 4.3% of outstanding household debt—which also climbed 10% to $18.2 trillion:

Americans have continued to increase spending even though wage growth has slowed after a post-pandemic surge. This obviously increases the odds of household insolvency, as people run down savings to pay their rising credit card bills and make mortgage payments, thereby raising risks to the housing market and the economy overall. It was this surge in spending, economists say, that helped keep the economy from sliding into the recession many thought would hit by the end of 2024. But if incomes don’t resume rising fast enough for consumers to catch up on their debts, spending will inevitably fall. Economists warn that could be the straw that breaks the economy’s back.

Weaker spending is already forcing some companies to cut staff. But the prospect of joblessness and rising prices due to Trump’s tariffs aren’t the only worry facing consumers. The housing market is also weakening: housing starts fell 4.6% in May from the same month of 2024.

Americans may also face reduced government health benefits in less than a decade. The folks that run Social Security reported Wednesday that benefits to older and disabled citizens are on track to drop by 19% in 2034 as the state pension program faces the reality of an aging population: more old people collecting benefits and fewer young people contributing earnings into the system.

Medicare benefits are likely to be cut even sooner, the report said. Reserves are on track to run out by 2033, requiring an 11% cut in benefits.

Evidence is also mounting that Trump’s industrial policy for America is a failure. Makers of generic drugs won’t answer Trump’s call to move manufacturing to the United States. Why? Trump’s tariffs make it unprofitable, not to mention too unpredictable, according to The Wall Street Journal.

Tariffs are also pulling the plug on the nascent U.S. battery industry, which can’t build up without components—and technological know-how—from China. But generic drugmakers say they face a more basic problem: their margins are simply too low to move production to the U.S. without government incentives to offset the capital investment required. Without that, they say they’re more likely to reduce production in the U.S., which would result in Americans absorbing the cost of the tariffs on imported medications.

This is a problem, since generics make up about 90% of American prescriptions. Trump has been threatening to slap tariffs on imported drugs for months, a threat he repeated while in Canada this week for his abbreviated appearance at the Group of Seven summit. In the meantime, he’s launched a plan for promoting domestic drug production that seems to rely largely on expediting regulatory approval for domestically produced drugs, while extending the review of imported ones. The impact may be moot, however: thanks to cuts made by Trump’s “Dept. of Government Efficiency” at the Food and Drug Administration, drug approvals are facing such lengthy delays that they’re starting to hit some drug companies’ profits.

So far, big-brand drugmakers have promised to heed Trump’s call. According to the Journal, Bristol Myers Squibb, Eli Lilly, and Roche are among those that have pledged to invest more than $250 billion in boosting U.S. production. But that only stands to boost the U.S.-made content of the 10% of brand-name drugs Americans take. Brand-name drugmakers enjoy margins as high as 28%, while generic drug makers work with margins around 18%.

Generic drugmakers say that’s not enough to justify shifting production to the U.S. One has to wonder, however, if there’s a price at which it would make sense. Whatever it is, it’s a cost we can be sure Trump is willing for Americans to bear.