Welcome to Thoughts on the Market. I'm Arinima Sinha from Morgan Stanley's Global and U.S.

economics team. It's been almost three months since President Trump took office, and today

we want to take the pulse of the U.S. consumer. It's Tuesday, April 1st at 10 a.m. in New York.

We recently lowered our forecasts for nominal consumption spending in

2025 and 26 on the back of increased policy uncertainty, and we now see bigger downside risks

to consumption. To understand what's happening, I'm joined by my colleagues, James Egan, Morgan

Stanley's co-head of

U.S. securitized products research, and Heather Berger from the U.S. economics team. Heather,

I want to come to you first. Could you walk us through our view for the year in the context of

where consumption spending is now? What we've seen is that through the end of last year, consumer spending growth actually

held up pretty well. We saw that nominal and real spending growth both outpaced the pre-COVID

averages in 2024, and there was actually strength into the end of the year as well.

So far this year, we have seen that there has been more weakness in terms of consumer sentiment,

as well as some of the spending data has been more weakness in terms of consumer sentiment,

as well as some of the spending data has been a bit weaker, a bit sooner than expected.

What's really been supporting consumers and supported spending last year has been continued growth in labor income, as well as significant accumulation of wealth, which has really supported

high-income consumers.

Heading into this year, we did expect

that consumer spending growth would slow, largely because of the impacts of tariffs and immigration,

and we did lower our spending forecast from where we had them at the end of last year. So far,

we do think that most of the weakness has been in the soft data in terms of sentiment, but we still do

expect that these policy changes will result in

...