Welcome to this month's economic outlook

for the US economy.

My name is Natalie Gallagher.

I'm a principal economist with Ford.

And today I'm gonna build on the presentation I gave last

month where we talked about the most realistic path forward

for the US economy in a post tariff environment.

Gonna give some updated data we see for real GDP,

the labor market, real income and inflation.

And we're going to talk about how this all ties together

for the trajectory of the CPG industry in 2025

and heading into 2026.

So last month we heard that the trajectory

for the US economy was much softer currently than it was at

the beginning of the year.

So we had already shifted an outlook from earlier optimism

to caution as new tariffs were anticipated

or are anticipated

to start affecting the economy right about now.

And the latest data confirms that shift.

So notably consumer spending was revised downward in the

second estimate of Q1 real GDP

and the risks from policy uncertainty

and labor market trends are now front and center.

So in short, we're tracking a slower,

more vulnerable economy

as we head into mid 2025 than we were just a few months ago.

Now, bringing this back to inflation,

we do see re-acceleration on the horizon

as higher input costs from tariffs work their way

through supply chains.

And this will put upward pressure on household budgets

and business margins,

or I should say additional pressure on household budgets

and business margins.

As we head into midyear now,

we're entering into an environment

where inflation is not only anticipated to become, uh,

or continue to be a thorn in consumer side, anticipated

to be a, a more painful thorn in their side.

As we make our way through the year,

and when we bring it back down to the household level,

we actually see a little bit of a bright thought.

So we've talked about how overall

economic growth has slowed.

We see inflation on the horizon.

Reaccelerating comes to real incomes.

We actually saw wage growth

and business income surprise to the upside a little bit,

so it showed some resiliency.

However, that's really likely to change

as inflation does start to pick up as we start to see

that impact in the data.

And it works through the real income numbers,

so the inflation adjusted income numbers

to erode purchasing power.

And we're really at a interesting juncture in the economy

right now because we're right on the cusp

of seeing the true impact of tariff costs being passed

through to the consumers, which is very likely to lead to a,

a additional pressure on real income growth for 2025.

So in short, real income is holding up for now.

Um, but as we continue to make our way into the year start

to really see those impacts from those tariff price

pressures hit the data, it's very likely that

that growth will wane.

And we actually see a little bit of additional support

for the, the concept

that incomes are gonna be under pressure when we

consider it the latest employment release.

So this month's employment release, we saw

job gains continue to be concentrated in just a handful

of sectors that was primarily healthcare and hospitality.

We don't really love to see that as economists

because broad-based job gains are what we really need

to imply economic resiliency, we are not seeing

that right now, unfortunately.

We also saw the pace of hiring has slowed substantially over

the last 12 to 18 months.

That's another factor that is absolutely weighing on morale

as individuals try to either find a new job or um,

or enter out, enter into the labor market from being out

of the labor market and and find employment once more.

Now, concerningly,

we're also seeing labor force participation

and the employment to population ratio edge down.

Now while layoffs are sort of historically low, um,

on the other hand, right, we absolutely see the anticipation

that unemployment is expected to rise.

See that in the consumer sentiment data really clearly,

the expectations for unemployment

and additional layoffs over the next year are, um,

are quite astounding, right?

So consumers are absolutely anticipating that they are going

to be in an even softer labor

market than they are right now.

Now, for CPG, that means a much more defensive consumer

as we enter into the second half of this year when,

when we really dive into CPG.

So taking everything

that we've talked about on a macroeconomic level

with overall economic growth inflation,

the labor market income, we bring it back down to CPG,

the CPG industry, what we see

for the forecaster trajectory is a downgrade in growth

estimates, but continued resiliency to some degree.

So earlier in the year we were forecasting about

4.6% growth.

Now we're down to 3.5% growth.

And a lot of this is really tracking

what we see in the overall economy as we sort of have

to come to terms with the fact

that we're in a more vulnerable place.

Now, essentials like food

and personal care are going to continue

to support demand even as overall economic growth does slow.

The main drivers for CPG, so employment, income

and population growth, they're still providing a foundation.

It's just that the upside potential is limited as inflation

and labor market uncertainty persists.

So we have up until this point

discussed pretty pretty robustly the trajectory

for the labor market and real income.

We see continued growth here, albeit, um, much slower, much

below potential than we would have in a,

in a non tariff environment.

But one factor we haven't touched on is population growth.

And this is really key to overall CPG industry growth

because as we have, um, a population that's growing

and expanding, we also have a expanding customer base.

So we have long-term population projections that continue

to support growth and sort of of offset some

of that economic weakness.

And that's absolutely what we see in the data.

Now, population growth is anticipated to continue

to support demand for CPG with net international migration.

Now the main driver of population growth, which does help

underpin steady GDP demand, though, you know,

future shifts here in policy

or significant changes in birth rate metrics could

change this outlook.

Um, however, it does seem to imply some resiliency in sort

of the, the core growth metrics of CPG.

Now, taking all this aside, right,

so we've talked about the economic conditions,

population assumptions.

This is applying some, some resiliency in CPG,

although a little bit softer than we initially anticipated.

So a really fair question at this point would be

how are consumers most likely to respond

to this environment in the second half of the year?

And then what can you as an industry leader really do

to meet consumers where they are

and make sure that your industry

or your business, um,

experiences resiliency with these risks.

Now, it's very likely that households are going to continue

to adapt by cutting back

where they can in the second half of the year.

So whether that's on discretionary purchases, even more

of a shift to private label or smaller pack sizes.

Now demand for core products should hold up,

but premium non-essential categories will face headwinds

as consumers are sort of forced to come to terms

with a softer economic environment.

Now, to navigate this environment, there are a lot of things

that CPG leaders can do.

So doubling down on value, especially as we see inflation

re-accelerate and we know that consumers are, um, not going

to respond favorably to that, right?

We see that in the consumer sentiment numbers

that we've already talked about, continuing

to optimize supply chains to offset tariff impacts.

So this is very likely to continue to be a hot topic for,

you know, probably the next six months if not longer.

It's really important to have a beat on what's happening on

the supply chain side so that you can be really ready to,

to react to control the cost side of your balance sheet

to whatever degree you can.

Focusing on consumer segmentation.

So this could be a, a webinar presentation,

all all on its own,

but we know that consumers are not all being impacted

by the economy in the same way, right?

So there's definite consumer bifurcation going on,

knowing your consumer base

and your core consumer's gonna be really key in how you can,

um, prioritize changes to either promotional strategies

or pricing strategies through the year.

And then last but not least,

and I'm probably gonna sound like I am beating a dead horse

with this one, but scenario planning.

So when we are in an environment

that is quite volatile like we are right now,

really the best path forward for you as a business leader is

to have at your disposal multiple

playbooks, multiple scenarios.

So that should the unexpected happen,

you're not starting from ground zero sort

of making decisions in haste.

You have a plan of attack forward

and you know what levers you can pull to really respond

to the economic environment changing quite rapidly.

In summary, right, the outlook has really shifted.

We have entered into a a period of the economy

where things are much more cautious.

Growth is anticipated to be more sluggish.

We're in a little bit of a more vulnerable position.

So there are a multitude of ways that as a business leader,

you can take these economic signals

and you can, um, apply them to your own insights,

your own data-driven decision making, your conversations

that you're having at the boardroom level

or even implementing them into your forecasting so

that you can create a more realistic, precise forecast

as we make our way through the year, considering many

of these economic signals.

If you are interested in this

or you would like to see how, how board can facilitate you,

we do have two products at your disposal.

It's gonna be board signals and board foresight.

I know that anyone would be more than happy at

board talk you through that.

So if that's something you're interested in,

please feel free to go to board.com and request a demo.

And with that, I just wanna say thank you for your time.

It was an absolute pleasure

and I look forward to seeing you again next month.