Topline
As President Donald Trump’s oft-changing tariff policies work their way through the economy, fears of a downturn pervade Main Street and Wall Street, with odds of the U.S. facing a recession still higher than usual.
US President Donald Trump flanked by his two top economic officials earlier this month in Treasury ... More
Goldman Sachs reaffirmed its probability of a U.S. recession over the next 12 months at 45%, as the investment bank’s chief economist Jan Hatzius wrote Tuesday there’s still high probability of an “event-driven downturn.”
Hatzius noted there’s still “meaningful risk that some of the paused ‘reciprocal’ tariffs will take effect after all,” nodding to the country-by-country levies Trump announced April 2, before pausing many of those tariffs a week later as financial markets sold off.
Others on Wall Street are more optimistic, as Solita Marcelli, UBS Wealth Management’s Chief Investment Officer Americas, wrote Tuesday she expects the U.S. to dodge “a full-blown recession this year as trade deals are agreed and tariffs are reduced.”
The technical definition of a recession is two consecutive quarters of negative growth in gross domestic product, a comprehensive measure of all goods and services produced in a country. 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. However, the National Bureau of Economic Research is the most commonly cited determiner of recessions, and it defines one as a “significant decline in economic activity that is spread across the economy and lasts more than a few months.” That means the U.S. economy could avoid sinking into an all-out recession, even if Q2 GDP is negative, if it recovers quickly.
Not particularly, at least not yet. Employers added more jobs than forecasted in April as unemployment rate stood at 4.2%. Goldman forecasts unemployment will rise to 4.7% by year’s end, but the jobless rate has ranged between 4% and 4.2% since May 2024. The 4.2% unemployment rate sits well within the healthy historic norm. One key labor market recession indicator is the Sahm rule, which holds that when the three-month average of the unemployment rate rises by 0.5% compared to the lowest of three-month average from the previous year, a recession has begun. But so far, that gauge flashes a far lower likelihood of a recession than it did when it peaked last summer, inspiring a short-lived market selloff in August.
Experts largely view the prospect of a tariff-driven recession as a tossup. Torsten Slok, the chief economist at asset management titan Apollo Global Management, wrote last month he believes there’s a 90% probability the U.S. will fall into a “Voluntary Trade Reset Recession,” slamming Trump’s trade policies for being “implemented in a way that has not been effective” after his “administration inherited an economy with strong growth.” Bank of America CEO Brian Moynihan said his bank’s baseline economic forecast does not call for a recession this year, while Morgan Stanley forecasts 40% odds and JPMorgan Chase projects a 60% chance. Lawrence Summers, the former Treasury Secretary during President Bill Clinton’s term, said in an April editorial podcast in The New York Times he believes it’s “six in 10 or better that a recession will start this year,” explaining: “The pause is certainly better than if we had simply charged along on the catastrophic path that we’re on, but anybody who thinks the genie is back in the bottle and that it’s all now OK should reconsider their position.” Summers predicted such a downturn would leave an additional 2 million Americans unemployed, a more than 28% increase from the 7.1 million unemployed Americans in March, and a $5,000 or greater decline in annual household income.
Treasury Secretary Scott Bessent, the administration’s top economic official, claimed Tuesday there is “nothing in the data that shows that we are in a recession.” National Economic Council director Kevin Hassett told Fox Business' last month he is “100% not” expecting a recession in 2025, explaining recent discussions with CEOs indicated the “uncertainty over tariffs” won’t be “a big drag” on the economy. Trump said last week he’s not worried about a recession, while distancing himself from any potential weakness as remnants of the economy under former President Joe Biden.
Trading in two of the world’s most precious commodities certainly point to the prospect of a global recession. Gold prices are up more than 20% this year to a record $3,400 per troy ounce as investors flood into the historic safe haven asset, while prices for international benchmark Brent Crude sank this month to their lowest point since 2021 as traders braced for a potential global weakening in oil demand as economic activity slows.
Perhaps the most concerning signal over the last is a breakdown in everyday Americans’ conviction in the economy. The Conference Board’s closely watched consumer confidence survey tumbled in April to its lowest level since 2020 and the University of Michigan’s consumer sentiment survey registered its largest three-month decline since 1990 from January to April. But spending has held up, as March retail sales grew by 1.4% from January to February, according to a report released April 16 by the Census Bureau, better than the 1.2% month-over-month increase projected by economists.