While we think there is still time for the executive branch to limit the damage from the new tariff regime, it is too late to prevent the economy from slowing to a crawl. After all, a 25% effective tariff rate and the new 10% minimum tax on imported goods are tantamount to a $410 billion per year consumption tax on businesses and households. Polymarket, the cryptocurrency-driven prediction platform, has opened betting lines on the likelihood of a recession. Users are currently assigning it a 38 percent chance, a significant increase from 23 percent last Friday. The CBOE Volatility Index, a widely watched gauge of market risk, has increased by approximately 50 percent in the past month, suggesting that investors and institutions are hedging their portfolios in anticipation of heightened market fluctuations.
Our forecast implies an increase in the unemployment rate to 5.5% by the end of the year. We also expect the personal consumption expenditures price index, the Fed’s preferred gauge of inflation, to reach 4% and the PCE core index, which excludes the more volatile food and energy components, to hit 4.5% over the next 60 to 90 days. With manufacturers now contending with elevated inventory-sales ratios, the coming downturn will look like a garden-variety, inventory-led recession that will require the Federal Reserve to cut interest rates and Congress to approve tax cuts to put a floor under the economy. Following Friday’s report on the U.S. unemployment rate and nonfarm payrolls, analysts will turn their attention to Wednesday’s report on the core inflation rate from the Bureau of Labor Statistics. Other measures of economic risk have similarly risen in recent days, suggesting that markets are anticipating tough times ahead for the U.S. economy. On the subject of tariffs, Zandi said there’s no question that they’re being felt, and will be felt even more in the future, by consumers.
(Not so) ailing consumers
On the other end of the spectrum is Allen Sinai of Decision Economics, who gives only a 20% chance of a recession in the next 12 months. The unemployment rate was 4.2% in March, not far from historic lows and nowhere near indicating an economic downturn.”We’re fully employed right now,” he said. “The jobs count is fine.”Sinai also sees green flags in data about consumer spending, the pillar of the economy, responsible for 68% of the gross domestic product. Consumer surveys show that people have been increasingly worried about inflation, the health of the job market, and their own financial situations in recent months. If people pull back on spending, it could spell trouble for the economy.
Will There Be A Recession? Some Economists Say It’s Inevitable, Others Aren’t Convinced
The U.S. just recorded its first quarter of negative GDP growth since 2022. While that estimate was likely skewed negatively by its methodology, including how it accounts for a surge in gold imports, some will likely say we have entered a recession if the second quarter agains registers a negative GDP. I see five things going on that could logically lead to or worsen a recession. The third is major cuts in government spending, assuming Musk and Trump manage to find genuine cuts. The fourth is a U.S. fiscal crisis because of a government shutdown, failure to raise the debt ceiling, or a us recession on the horizon when experts think it could hit downgrading by Moody’s, the credit rating agency.
- “That’s the firewall between recession and no recession, is the low layoffs,” he said.
- Although not a definitive indicator of an impending recession, oil prices have fallen to their lowest level since September, indicating weaker demand and, to some, serving as a potential warning for the economy.
- But to Mark Zandi, chief economist at Moody’s Analytics, the warning signs—or “red indicators”—are showing up in every corner, from housing to employment to consumer prices.
- Civilian employment is expected to shrink dramatically under Donald Trump’s presidency.
Trump’s tariffs have not hit the American wallet as hard or as fast as Zandi initially predicted. At the top of his “long list of indicators to be concerned about” is jobs. The mismatches which lead to a recession, “can be driven by shifts in consumer preferences, interest-sensitive investment, technology, government spending, credit strains, or crises like the pandemic,” Hussman wrote on X. For two years in a row now, economists have been wary of the U.S. economy sliding into a recession. While many feared a downturn in both 2023 and 2024, the country’s real GDP—which measures the nation’s growth—kept beating economists’ expectations.
Optimism about the state of the economy, and one’s personal finances, translate into consumer spending, estimated to account for over two-thirds of the nation’s gross domestic product (GDP). While the Trump administration is optimistic about the country’s growth prospects—Commerce Secretary Howard Lutnick going so far as to say Americans should “absolutely not” prepare for a recession—economists are voicing gloomy forecasts. And, you know, depending on how hard those headwinds blow will determine whether we go into recession or not. But they go directly—connect the dots from all this right back to policy. So it’s not that like they’re cutting, they’re not laying off, so it’s not a recession, but it’s the reason why they have paused. And now we’re going to see the real consequences of these policies in the form of higher prices, reduced purchasing power, less labor force.
I mean, that was clear if you go back in 2024 when, before the tariffs and the immigration policy, the economy was growing very rapidly, doing quite well. And of course the poster child for kind of what’s structurally going right is the boom in AI and technology more broadly. And that’s real and having real and significant, very positive economic consequences that’s showing up in lots of different places. So as soon as you see negative employment—payroll employment decline in a month—that’s when alarm bells should start going off. And I would anticipate that that’s going to happen and that’s going happen soon.
Read Newsweek’s full interview with Mark Zandi below:
But July’s job numbers as reported by the Department of Labor indicates that may be changing. Since then, there has been some evidence of improving labor market conditions. The unemployment rate fell to 4.2% in August, and initial jobless claims—a key measure of layoffs in the economy—sank to 219,000 for the week ending Sept. 14. That’s the lowest level since May, and down from 231,000 the prior week. When the U.S. unemployment rate rose to 4.3% in July, it triggered the “Sahm rule,” a recession indicator created by the economist Claudia Sahm.
It’s going to be $2 trillion over 10 years if the tariffs remain in place, largely remain in place over that 10-year period. And fundamentally, the economy is still sound and that would shine through if we can just get to the other side of the fallout from the tariffs and the immigration policies. If, however, and it feels at the moment, like Q3, the current quarter, we’re going to get a small positive increase, maybe one-and-a-half, 2 percent. Labor force growth has come to a standstill, and that’s going to mean fewer jobs, if any jobs.
What a recession means for your money
Consumer sentiment, current assessments of economic conditions, and consumers’ expectations for the future deteriorated across all political affiliations and for multiple facets of the economy, with the latter dropping over 15 percent from February. Historically, recessions begin and end with payroll employment, with jobs. When employment goes negative in a given month—and that’s the start of a job loss on a consistent basis—that’s start of recession. That’s when the National Bureau of Economic Research (NBER), the group of academics that date business cycles here in the U.S., will date the start of a recession.
He also said that if tariffs continue to increase, it could undermine the kind of safe-haven status that US assets like Treasurys and the dollar have long enjoyed. “The reason why the economy is on the precipice of recession is policy. If we go into recession, just how deep and long the recession will be will be because of policy,” he stated. That said, Zandi said he thinks that is impossible to forecast exactly when the recession will hit and how bad it will be.
The bank’s chief economist Jan Hatzius cited the “reduced risk of U.S.-China tariffs high enough to cause production disruptions and the encouraging signal about future tariff policy decisions” in his Monday update. “Recessions tend to be unforecastable,” Claudia Sahm, chief economist at New Century Advisors and a former Fed official, told ABC News. “Often there’s an event that causes people to lose confidence, change behavior and start a downward spiral. Those events are very hard to predict.” “It seems to me people are anchoring on the jobs report and using it to telegraph a recession. I’m not sure it does that,” Mark Blyth, a professor of political economy at Brown University, told ABC News.
Another recession came at the beginning of the 1990s as the result of a major stock collapse in October 1987,144 referred to now as Black Monday. Although the collapse was larger than the one in 1929, the global economy recovered quickly, but North America still suffered a decline in lumbering savings and loans, which led to a crisis. The recession was not limited to the United States, but it also affected partnering nations such as Australia. The unemployment level increased to 10.8%, employment declined by 3.4% and the GDP also decreased as much as 1.7%.
- Many investors fear a prolonged trade war could push the nation into a recession.
- Swonk said that the NFIB data points to “higher prices with less hiring or no hiring.”
- “By contrast, households would have little need to deleverage today if the labor market were to deteriorate more than we expect,” the economists explained.
- At this time, we would expect 25 basis-point rate cuts at every meeting of the Federal Open Market Committee until the policy rate reaches that target.
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This has resulted in mass layoffs, the defunding of federal agencies, and the termination of various government contracts. Despite this, the New York Federal Reserve recently suggested the US could still experience healthy economic growth in the same quarter, intensifying the divide among economic experts. Recent data from the US Bureau of Labor Statistics revealed that over 150,000 jobs were added in February, marking the first full month of Donald Trump’s second presidency.