Recession fears have escalated amid President Donald Trump’s administration and steep tariffs on US trading partners, including Canada, China, and Mexico. Stocks plummeted Monday after Trump mentioned the possibility of a recession in an interview.
History suggests that a recession is defined as a significant decline in economic activity lasting more than several months. The National Bureau of Economic Research (NBER) uses three criteria: depth, diffusion, and duration to determine recessions.
However, some economists caution against relying solely on technical indicators like back-to-back quarterly contractions in real GDP. Gregory Daco, chief economist at EY Parthenon, warns that a single contraction can come from various sources.
Recent data show a surge in imports and an accelerated trade deficit as businesses prepare for potential tariffs. The Federal Reserve Bank of Atlanta estimates that first-quarter GDP may decline by 2.4%, the first quarterly contraction since 2022.
Daco emphasizes that while recession fears are valid, there’s no clear indication of an imminent crisis. Private sector activity is cooling, with slower labor market momentum and consumer spending with more caution. However, if trade policies persist, it could lead to a more pronounced slowdown in economic activity.
The financial health of Americans is crucial, as consumer spending drives the US economy. Daco notes that higher-income individuals are doing more than their fair share of spending, which raises concerns. The current uncertainty and lack of clarity around policy intentions add to the unease among businesses.
As the Trump administration continues to implement its sweeping policies, economists urge caution and monitor the situation closely.
Source: https://edition.cnn.com/2025/03/10/economy/us-recession-explained/index.html