Shutdown Shadow

The latest Reuters Morning Bid highlights a modest but still robust U.S. growth outlook. Gross domestic product is projected to slow to 3% this quarter, a decline from 4.4% in the prior period, with the recent 43‑day government shutdown estimated to have removed roughly 1.5% of output—costing the economy $7‑14 billion. Analysts are watching consumer spending trends, especially whether higher‑income households are beginning to curb expenditures as inflation pressures persist. Notably, artificial intelligence is now credited with driving about one‑third of the nation’s growth, fueling investment in data centers, chip production and hyperscale cloud services.

At the same time, the trade deficit widened to its largest annual gap since the 1960s, underscoring the limited impact of President Trump’s tariff strategy. Imports remain strong, propelled by AI‑related equipment, while manufacturing employment has slipped over the past year. A pending Supreme Court decision on the legality of recent tariffs could force the Treasury to refund roughly $110 billion, shaving another 0.4% off GDP and further challenging the policy’s efficacy. These dynamics suggest that tariff‑driven reshoring is not delivering the expected manufacturing revival.

The private‑credit sector is showing its own vulnerabilities. Blue Owl’s forced $1.4 billion asset sale and restrictions on fund withdrawals signal broader stress, as many lenders have concentrated exposure to AI start‑ups with untested revenue models. Market participants note parallels to the early stages of the 2008 financial crisis, where opaque debt structures sparked panic. Investors should monitor credit quality, AI valuation risks, and potential regulatory shifts that could amplify systemic concerns.