US Growth Slows Amid Trade War Fears

No need to check the news today; it’s still chaos out there. The Wall Street Journal is grumbling that “Trump Plays Recession Roulette With the American Economy.” Fortune worries that “American Attitudes About the Economy Are the Worst in 12 Years.” Politico calls it “Trump’s Risky Recession Dance” (as if he could dance).

On the other hand, The Economic Times is loving it. Trouble is, The Economic Times is in India. “America’s Pain, India’s Gain? US Recession Can Actually Be Helpful.” Just not to Americans.

Meanwhile, the final revision to Q4 2024 real GDP just came in: up from 2.3% to 2.4%. That’s down from 3.1% in Q3, but still healthy. Annual growth in 2024 was 2.8%, “down a tick from 2.9% in 2023,” says AP, but also still plenty healthy.

The question is whether it’ll last. In November, Goldman Sachs was convinced “the US economy is poised to beat expectations in 2025” and grow 2.5%. Now Goldman says we’ll be lucky to squeak by with 1.7%.

Why is no mystery. “Our trade policy assumptions have become considerably more adverse,” chief economist Jan Hatzius told Fortune.

That’s not good news for an already weak housing market. Ever since the feeding frenzy in 2021-22, single-family home sales have looked like a heart attack on a cardiac monitor. Existing homes came in at 4.26 million in February (annualized), up 4.2% vs. January but down 1.2% YoY. New home sales landed at 676,000, up 2.9% vs. January and up 5.1% YoY.

Any bump is nice, but this one doesn’t mean much. The U.S. got whacked by four major winter storms in January, including two in the Deep South. Weather almost certainly pushed some transactions back to February.

February housing starts were also up vs. January, probably for the same reason. Single-family starts came in at 1.1 million annualized, up 11.4% on the month but down 2.3% YoY. Multifamily starts were 393,000, up 10.7% vs. January but down 4.6% YoY.

Until recently, forecasters thought 2025 would be the year housing finally turned the corner. Last October, forecasts averaged out to a 3% to 4% increase in housing starts this year. Now analysts are calling for a 2% to 3% decline.

They’re still talking about a 3% to 4% increase in 2026, though. We’ll see. So far, the threat of trade wars hasn’t had any impact other than scaring the bejesus out of economists and some investors. It may be a little bit early to start counting 2026 chickens as hatched.

While trade wars may or may not be a good idea in theory, some of them definitely seem misplaced. Frodo and Samwise, Wayne and Garth, Rocky and Bullwinkle, the Lone Ranger and Tonto—take your pick. You’ll be hard-pressed to find BFFs whose relationship has been stronger or longer-lasting than the friendship between the U.S. and Canada.

Not anymore, says Mark Carney. Carney, who leads Canada’s Liberal Party and took over as interim prime minister when Justin Trudeau resigned in mid-March, says “Canada’s old relationship with the United States is over,” reports BBC.

Carney has called an election at the end of April to make his interim status official. The cornerstone of his campaign is a vow to fight U.S. tariffs “with retaliatory tariffs that will have maximum impact.”

No tariffs have been implemented as of this writing. It’s possible that they won’t be implemented at all, or if they are, they’ll be short-lived. It doesn’t matter. Canada is still ready to say Hasta la vista, baby.

“Canadians must fundamentally reimagine our economy” to reduce dependence on the U.S., says Carney. “It remains to be seen whether Canadians can have a strong trading relationship with the United States going forward.”

His Conservative Party opponent, Pierre Poilievre, is—or at least, was—more accommodating. Canada’s National Observer says Poilievre spent “the last two-plus years imitating Trump’s approach to politics.” Now he’s backpedaling and trying to take a tougher stance, and it doesn’t appear to be working.

In January polls, Conservatives held a whopping 24-point lead over Liberals. After two weeks with Carney in office, Liberals have erased that deficit and jumped out to a three-point lead.

But however it plays out, Americans and Canadians are still joined at the hip in one way: We’re both in an uproar about a trade war with each other, and both markets are reacting accordingly.

In Canada, total February housing starts were 209,784, down 4.6% vs. January and down 11.6% YoY. Multiples, which account for nearly 80% of the total, took most of the hit: down 5.5% from January and down 15.0% YoY. Was it the weather? Maybe, but SFD starts came in at 43,276, down just 1.2% vs. January and up 4.6% YoY.

Sales were not encouraging, either. The Canadian Real Estate Association says home sales in February fell 9.8% vs. January, “the lowest level for home sales since November 2023 and the largest month-over-month decline since May 2022.”

“The moment tariffs were first announced on January 20, a gap opened between home sales recorded this year and last,” says senior economist Shaun Cathcart. In February, YoY sales were down 10.4%, says CREA.

One bright spot in Canada is that, unlike the U.S., mortgage rates have been falling steadily. The most recent peak was 6.47% in November 2023 (5-year conventional loan). As of February 2025, the average rate was 5.29%.

Kevin Hughes, deputy chief economist at the Canada Mortgage & Housing Corp., thinks “lower mortgage rates and eased qualification rules” will help push sales up as the year goes on. But not everywhere. “More affordable regions like Alberta and Québec will lead the price and sales recovery,” while “affordability challenges in regions like Ontario and British Columbia are likely to persist.”

That’s another thing the U.S. and Canada have in common: Housing has become marginally affordable in both countries.

It wasn’t that long ago that the typical American paid less than 25% of income for a mortgage, and anything over 28% made lenders nervous. The average in Q4 2024 was 37% according to the NAHB/Wells Fargo Cost of Housing Index (CHI).

The National Bank of Canada’s Housing Affordability Monitor isn’t apples-to-apples with CHI because CHI tracks 176 U.S. metros while NBC covers only the ten largest CMAs. But in those ten markets, Canadians pay more for a mortgage than Americans: 42.1% of income for condos or 62.2% for non-condos as of Q4 2024.

The percentages are a little misleading, though. Most people don’t actually pay that much. Instead, they get cut out of homeownership altogether.

Part of the problem is that affordability challenges are not spread evenly. In its 2025 Priced-Out Analysis, NAHB notes that “70% of households (94 million) cannot afford a $400,000 home.” The median price of a new home in February was $414,500 while an existing home was $398,400.

Sound scary? It’s actually worse than that. Within that group of 94 million, four out of five can barely afford a $300,000 home, let alone $400,000.

Conventional wisdom says the solution to the affordability problem is to build more homes to restore the balance between supply and demand. That’s true as far as it goes, but we don’t have a housing shortage at the upper end of the market. Once you get above $300,000, the number of housing units and the households that can afford them match up just fine.

But by NAHB’s count, there are just 37.4 million housing units valued below $300,000 and 76.4 million households that can’t afford any more than that.

So why don’t more builders build more homes at the low end of the market? The reason you hear most often is that affluent buyers are more profitable. As long as they’re buying, it makes sense to chase them.

Tne question these days is how long they’ll be buying. A new study from Moody’s Analytics “found that the top 10% of U.S. households in terms of earnings account to 49.7% of consumer spending,” reports Fox Business.

That’s an all-time record dating back to 1989. “Three decades ago, they accounted for about 36%,” says the Wall Street Journal. The caveat is that “the buying power of the richest Americans stems in part from the swelling values of homes and the stock market over the past several years.”

Retail spending accounts for roughly 70% of the U.S. economy at this point. The risk is that a correction in the market or a protracted decline in home values could cause affluent Americans to pull back. If the top 10% stop buying stuff, there is no backstop to keep the economy going—and it’s a pretty safe bet that houses will be one of the things they stop buying.

That’s why analysts are nervous. Proponents say tariffs will force manufacturers back to the U.S. and ultimately create 2.8 million jobs. Maybe. Or tariffs could push the economy into stagflation: inflation plus minimal growth and high unemployment.

We won’t know for at least a month or two. Right now the only thing you can bet on is that we’re headed for a rough patch. Even President Trump says so. “There’ll be a little disturbance, but we’re okay with that.”

So how much is a little? “The Atlanta Fed’s GDPNow estimate of Q1 growth, gross domestic product is likely to be -3.7% for Q1 2025,” reports Forbes. “That would represent a significant quarterly decline in growth.”

Yes it would, Sherlock. Time to buckle up.