No Changes To Economic Forecast

My economic forecast is unchanged at the end of Day One of President Trump’s second term as president. The inaugural speech and first set of executive orders do not change expectations for policy in any surprising way. A notable absence of news is specificity about tariffs and other trade restrictions. Immigration restrictions had already been incorporated into most economic forecasts, including mine, though there may be minor adjustments as policy details become clearer.

Looking at the short-run economic forecast, with a time horizon of two years, does not assess the overall effects of public policies. Some policies that have economic impacts also have broader social or political impacts. And some economic impacts will take place in later years. Thus, this forecast of short-run effects does not tell a complete story of plusses and minuses of the policies. However, business leaders assessing their companies’ plans for 2025 and 2026 need insights about economic change in the next two years; that is the purpose of this article.

Tariffs And The Economic Forecast

Foreign trade policy continues to be the greatest unknown that affects the economic outlook. The president will order government agencies to study trade issues with Canada, China and Mexico. There is little doubt that President Trump will raise tariffs, but the only information we have now is an order to study. The Washington Post reported that some of the new administration’s advisors were recommending a cautious approach, but President Trump has denied that story.

The magnitude and extent of tariffs, and other countries’ retaliation against those tariffs, constitute the largest uncertainty in the economic forecast.

Less Immigration Will Lower Economic Growth Rate

Immigration will certainly be lower in the Trump administration, but border crossings have already dropped, according to data from the U.S. Border Patrol. Further tightening of the border is likely, with several of the president’s Day One executive orders addressing that issue.

The magnitude of recent immigration variation is significant. In the year 2021 (as of July 1), the increase in our total population was about half a million people. In 2024, the gain was 3.4 million. Those extra people were numerous enough to impact the country’s overall economic growth.

These effects had already been taken into account in most economic projections, including my economic forecast. Less immigration will translate into slower growth of the labor force and a little slower growth of consumer spending. Immigration restrictions will not reduce economic activity, just slow its growth rate.

Mass deportations could cut production and consumption, but we may not have—or be willing to commit—the resources to deport all illegal immigrants. The President said in his inauguration speech that we will begin deporting criminal aliens. He’s probably referring to aliens who have committed crimes after entering the United States, rather than anyone who entered illegally. That number, though, is relatively small. The U.S. has about 11 million undocumented immigrants, and the annual felony arrest rate for the group is about 400 per 100,000, which makes 44,000 arrests per year. That’s a lot of people, but less than three hundredths of one percent of our entire labor force. Even expanding the definition of crime and extending back in time for past arrests leaves us with a negligible economic impact.

Oil Drilling Makes Little Change To Short-Run Economic Forecast

President Trump announced in his speech and in executive orders efforts to increase oil and gas production. However, exploration and development takes years, often as long as a decade. Oil companies have ideas about good areas to explore. Once they get a lease—and if it’s on federal land, expect lawsuits before the lease is finalized—they drill exploratory wells. When these prove successful (not always the case), then development wells are drilled. The company must manage transportation from the development wells to market. Most commonly this is by laying pipelines, but it could also be through trucks, railcars or tanker vessels. Using the increased domestic production may require increased refining capacity. In short, getting the oil to market will take a long time.

Even when increased oil hits the market from U.S. production, oil prices will only edge down a little. The market is global, and the increase in American production will be a small part of the world’s total supply and demand.

Thus, this policy change will provide some short-term stimulus to the oil industry but have negligible impact in the short run to the overall economy.

In summary, President Trump’s policy announcements on Day One of his second term provide no reason to change the economic forecast, but we need to keep an eye on tariffs in the upcoming months.