President Donald Trump’s tariffs have created economic uncertainty, driving down stocks and increasing fears of a possible recession.
In a recent interview with Fox News’s Maria Bartiromo, Trump didn’t rule out the possibility of a recession this year.
When asked about it, Trump said, “I hate to predict things like that. There is a period of transition because what we’re doing is very big.
We’re bringing wealth back to America. That’s a big thing. It takes a little time. But I think it should be great for us.”
Treasury Secretary Scott Bessent recently told CNBC that the U.S. economy will go through a “detox period” as it shifts from public to private spending.
Despite reassurances from the administration, investors remain uneasy, and some banks have raised their recession forecasts.
How Likely Is a Recession?
Recession risks have increased, but a downturn isn’t guaranteed.
Goldman Sachs recently raised its chances of a recession in the next 12 months from 15% to 20%, noting that the odds could rise further if Trump’s policies remain unchanged despite negative economic data.
J.P. Morgan Chase is more cautious, estimating a 40% chance of a recession this year due to “extreme U.S. policies.”
The Federal Reserve Bank of Atlanta predicts a 2.4% decline in first-quarter GDP — the first quarterly contraction since 2022. However, the New York Federal Reserve expects 2.7% growth in the same period.
Past Recession Predictions
Recessions have been predicted before but didn’t always happen. In March 2023, Goldman Sachs projected a 35% chance of a recession, but the economy avoided one.
A recession is generally defined as two consecutive quarters of negative GDP growth, but the National Bureau of Economic Research (NBER) considers it a “significant decline in economic activity” lasting more than a few months.
While the U.S. isn’t in a recession now, four key indicators suggest the economy is slowing.
1. Job Market Slowing but Still Holding
The U.S. added 151,000 jobs in February, showing a slowdown but still positive growth. The unemployment rate increased slightly to 4.1% from 4.0% in January but remains low.
However, February saw the highest number of job cuts since 2009, partly due to Trump’s Department of Government Efficiency (DOGE) reforms and government contract cancellations.
Jobless claims rose to 242,000 for the week ending February 22 — the highest since December but still low historically.
2. Stock Market Decline
The S&P 500 dropped over 7% in the past month, wiping out all gains since Trump’s reelection. Stocks like Tesla (-36%), Nvidia (-25%), and Meta (-16%) have seen steeper losses.
Investor concerns about Trump’s tariffs and higher costs for businesses and consumers are driving market volatility.
Major retailers like Target and Best Buy have warned that tariffs could lead to higher prices.
Despite recent declines, the S&P 500 remains about 10% higher than a year ago.
3. Consumer Spending Slowing
Consumer spending, which drives two-thirds of U.S. economic activity, dropped 0.2% in January — the largest decline in nearly four years.
Cold weather may have contributed, but it raised concerns about future spending.
Consumer confidence has also weakened. The Conference Board’s Consumer Confidence Index recorded its sharpest drop since August 2021, and the University of Michigan’s Consumer Sentiment Index declined due to tariff concerns.
4. Rising Debt and Late Payments
Americans now owe over $1.21 trillion on credit cards — a record high — suggesting that spending is being propped up by borrowing.
Late payments on auto loans have also increased. In the fourth quarter of 2024, 3% of auto loans were 90 days or more overdue — the highest since 2010.
Subprime auto loans saw an even sharper rise in delinquencies, with 6.56% of loans at least 60 days past due — the highest level since data tracking began in 1994.
Additionally, more Americans are withdrawing from their 401(k) retirement plans to cover emergency expenses, hitting a record high in 2024.
Outlook
While a recession isn’t certain, rising debt, slowing job growth, weaker consumer spending, and market instability are raising concerns.
The coming months will be critical in determining whether the U.S. economy can avoid a downturn.
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