The US economy is heading towards an uncertain phase, with recession fears escalating amid rising tensions and declining business sentiment. While Commerce Secretary Howard Lutnick believes a recession would be worth it to implement President Donald Trump’s economic policies, Treasury Secretary Scott Bessent describes the current situation as a “detox” period.
Recessions are costly affairs, with uneven impacts across different sectors of the economy. History shows that recessions can last varying lengths and depths, and their outcomes are unpredictable. A recession is typically defined by a decline in gross domestic product (GDP) for two consecutive quarters, but this doesn’t capture the full scope of economic activity.
The National Bureau of Economic Research’s Business Cycle Dating Committee looks beyond GDP to assess unemployment rates, personal income, consumer spending, and industrial production. These factors can deteriorate over time or crash hard, as seen during the COVID-19 pandemic. However, the NBER never declares a recession in real-time.
Recent surveys indicate declining business and consumer sentiment, reminiscent of Trump’s first term when tariffs led to global economic growth stalling. The risk of a US recession was considered small as of January, with low unemployment rates, rising wages, and inflation drifting towards the Federal Reserve’s 2% target.
However, the volatility in sentiment and stock market wealth is largely driven by Trump’s move to rewire global trade with steep tariffs on major trading partners. Such shocks can trigger downturns, as seen in the early 1980s when then-Fed chief Paul Volcker sent the economy into a painful recession.
Recessions come with significant costs, including falling business profits, stock prices, and incomes. Government deficits rise as more people qualify for benefits meant to offset economic weakness. Rising unemployment disproportionately affects Blacks and Hispanics, but each downturn is unique.
If there’s a silver lining, recessions can lower inflation. However, the US tariffs aimed at Canada, Mexico, China, and other trading partners have raised concerns about stagflation. A downturn could eventually slow inflation, and prices might even drop. The Fed would likely cut rates to soften the blow, benefiting prospective home buyers with cheaper mortgage rates.
As the economy enters this uncertain phase, it’s essential to monitor developments and stay informed about the latest economic indicators and market trends.
Source: https://www.reuters.com/markets/wealth/whether-us-is-heading-recession-or-just-detox-downturns-are-costly-2025-03-13