The table below shows how changes in the four components of Gross Domestic Product (GDP) contributed to the change in U.S. economic growth since 2021. Economic growth is measured by changes in GDP, which is the value of goods and services produced in a given time period. Personal consumption accounts for approximately two- thirds of GDP, and personal consumption has been the key and consistent driver of economic growth. As indicated in the chart below, personal consumption contributed significantly more to GDP growth than investment spending (including business investment in equipment and inventories), government spending, or net exports. Since 2021 U.S. economic growth has been solid. Following the economic rebound in 2021, U.S. economic growth was 2.5%, 2.9%. and 2.8% in 2022, 2023, and 2024, respectively. In each year, the driving force of the economy was personal consumption. In March 2025, retail sales rose to a record high as consumers stocked up before tariffs hit. Contributions to Percent Change in Real Gross Domestic Product–Annualized Rate (Source: Bureau of Economic Analysis) 2021 2022 2023 2024 GDP 6.1 2.5 2.9 2.8 Personal Consumption 5.83 2.06 1.72 1.87 Investment 1.54 1.07 0.02 0.73 Government Spending -0.05 -0.20 0.66 0.58 Net Exports -1.26 -0.42 0.49 -0.37 In 2025, tariffs are a driving force influencing growth expectations. Even before the “reciprocal” tariffs were announced in April, Americans became leery of economic performance in 2025. According to surveys by the University of Michigan, consumer sentiment, which can influence consumer spending, tanked in 2025, with sentiment dropping 28% in March from its level one year ago. Inflationary expectations for one year from now climbed to 5%. The combination stoked concerns over stagflation. Financial Markets The Stock Market The stock market reflects expectations for future economic performance, and those expectations have been rocked by U.S. tariff policies in 2025. The table below compares major stock index returns for selected countries for 2023, 2024, and 2025. The selected indexes are broad measures of stock market performance in their respective countries. The U.S. S&P 500 is a leading benchmark index for U.S. large company (large-cap) stocks, with a long-run historical annual average return of approximately 10%. The U.S. stock market soared in 2023 and 2024, with returns more than twice the historical average. In 2024, the U.S. stock market was the leader of the pack, with the S&P 500 returning 23.31%, slightly lower than the 2023 return of 24.23%. Things changed in 2025. U.S. tariff policies caused increased economic uncertainty and growing fears of stagflation, which contributed to the S&P 500 declining in the first quarter of 2025 by 4.59%. The decline in the technology heavy NASDAQ index was even more severe, with a decrease of 10.42%. Contrary to recent years, the performance of the U.S. stock market lagged most foreign stock markets. Volatility reigned in the stock market in April. Following the minimum 10% global tariff and “reciprocal” tariffs announced by the U.S. on April 2, U.S. and global stocks cratered, with the S&P 500 plummeting approximately 10% the following two days. On April 9, with the pause in “reciprocal” tariffs, the stock market had its best performing day in decades. The tech-heavy Nasdaq climbed 12%, its best day in 24 years, while the S&P 500 jumped 9.5%, its biggest gain since 2008. Alas, the rally was short-lived, with the S&P 500 and NASDAQ dropping 3.5% and 4.3%, respectively, the following day. The ups and downs for the stock market had returned. Economic uncertainties remained with the impact of the 10% global tariff and 100% plus tariff rate on imports from China, as well as the potential future return of the “reciprocal” tariff rates.
Central Wisconsin Report - Spring 2025
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