“If people are apprehensive about whether their jobs are going to go away or whether there are going to be more layoffs in the future, you’re gonna start to see a pullback on spending.” Yet, there’s some disagreement across the economic spectrum as to whether a recession is being indicated. The New York Federal Reserve pointed to healthy economic growth in Q1 of 2025. Yet there’s some disagreement across the economic spectrum as to whether a recession is being indicated. Beyond this, multiple major banks—including JP Morgan and Goldman Sachs—are sounding alarms about the economy by slashing growth expectations.
How Healthy Is the US Economy? Here’s What the Top Economic Indicators Say
One economic indicator sparking fears of a so-called hard landing was the disappointing jobs report on August 2, which showed that the unemployment rate jumped to 4.3% in July from 4.1% in the prior month. Fed policymakers have held off on interest rate cuts as they wait to see how much tariffs impact inflation. The personal consumption expenditures report showed core inflation accelerated to 2.8%, further above the Fed’s 2% target, and that consumer spending rose less than expected in June. “If tariff rates remain at current levels, we see a higher risk of stagflation—weak growth combined with higher inflation,” Sonola stated.For wealth advisors, the implications of stagflation include diminished real returns on fixed income and increased client concerns over purchasing power. Pimco’s Wilding expects the tech investment cycle to add a full percentage point to GDP growth this year, while at the same time “all other investment by businesses in the economy is pretty stagnant.” The “breakeven” level of jobs—economists’ term for the number of new jobs that need to be created each month to keep the unemployment rate steady—is now significantly lower than it has been over the past few years.
Against this backdrop, investors with exposure to duration – a gauge of price sensitivity to changes in interest rates, which tends to be higher in longer-dated bonds – have seen strong performance this year. An important exception, with the market still pricing in a terminal rate well above our neutral estimate range. As central bank policy rate cuts continue, steepness is returning to the front end of bond yield curves. Bond allocations remain an anchor for investment portfolios, providing stability and a potential hedge against elevated equity market risks. The fixed income opportunity is especially timely with central banks globally poised to cut interest rates further. Over the next few years, it remains to be seen whether productivity gains from AI and automation can offset immigration-related labor supply shocks, with fiscal policy in 2026 providing more support.
- Tech firms have already reduced hiring for entry level positions, with unemployment rising for people aged 16–25, including college graduates.
- With AI adoption broadening, investment in infrastructure including data centers and specialized chips will likely remain robust.
- (Though the Covid-19 recession was also exceptional in this respect.)
- Indicators from the past week paint an overall picture of an economy that’s headed for a downturn, according to Moody’s Analytics chief economist Mark Zandi.
- Zandi said there are several reasons to believe the likelihood of a recession is high.
- More recently, Wall Street banks predicted a possible recession after Trump’s “Liberation Day” tariff announcement, before pulling back their assessments after Trump dialed back the levies.
Employment rate signals
Bostjancic at Nationwide said it was possible for the United States to avoid a contraction in GDP if “just enough froth” comes out of the labor market, wages slow, and inflation comes down quicker than economists expect. The unemployment rate, for instance, is near a half-century low and job growth has slowed, but employers continue to add hundreds of thousands of jobs to the economy each month. Fed Chair Jerome Powell said the central bank was targeting slow but positive economic growth, and a relatively weaker labor market. Fed officials have repeatedly said they are aiming for a “soft landing” — a scenario in which the central bank raises interest rates and the economy slows just enough to bring down inflation but averts a recession. It’s really been the labor market and the consumer that has kept the economy buoyant, but once that turns, then the overall economy will as well.” As inflation cools, however, many businesses could see slower revenue growth and shrinking profit margins as consumers pull back spending, Bostjancic said.
These strong conditions mean the labor market has more room to slow than normal, some economists argue. By raising rates aggressively, officials risk significantly slowing the economy and causing a big jump in unemployment. “I think we would need to see a significant deterioration in the labor market for me to think we’re in a recession, and we have not seen any significant deterioration yet,” Bunker said.
“Using the Global Financial Crisis as a benchmark, that was a nasty six quarter recession in length, a year and a half, which is awfully long,” Kim said. And according to JPMorgan Asset Management, a “near-term recession is too close to call” although the report states if there’s a recession in 2023, it https://practicascup.com.ar/elbondinews/create-purchase-price-variance-journal-entry/ likely will be mild. Goldman Sachs Research suggests a chance that the US just “narrowly” avoids a recession.
WATCH LIVE: Bari Weiss and Lloyd Blankfein on Tariffs, Trade, and Trump’s Economy
KPMG Economics distributes a wide selection of insight and analysis to help businesses make informed decisions. Headlines mask weakness and inflation surge College-educated mothers of young children leaving the labor force. We monitor trends and identify potential opportunities that could impact your strategic objectives. KPMG Economics answers these questions and more, providing timely insight and analysis into the economic indicators. How do you separate the signal from the noise?
Will There Be A Recession? Some Economists Say It’s Inevitable, Others Aren’t Convinced
Bill Dudley, economist and former president of the New York Federal Reserve Bank, said earlier this month that stagflation could be the “best-case scenario” for the US economy. President Donald Trump said China faces tariffs of up to 245%, and his administration has also imposed a widely applied 10% tariff. Negative GDP means the total value of goods and services produced is declining — in other words, the economy is shrinking. AI is sending stocks soaring, rich people are spending big, and hiring is at a crawl. The February jobs report is not the “blockbuster” triumph President Trump imagines. But it won’t remake the economy overnight.
Accounting for the six-week government shutdown, he estimates that real GDP growth in the fourth quarter will be 2%. The economy may look strong, but Zandi said that the numbers look misleading. Zandi said there are several reasons to believe the likelihood of a recession is high. Whether it becomes stronger in the coming year will largely depend on the Trump administration’s policies, specifically regarding tariffs and immigration. The top economist at Moody’s Analytics was ringing the alarm all throughout 2025, and he’s still convinced that the headlines about strong GDP and a stable economy are masking other issues.
Beaten-Down Software Stocks Are Still Good Buys, Despite Investors’ AI Fears
But that could also mean the United States slips into a recession and more people lose their jobs or have a difficult time finding a new one. Inflation is expected to slow as the effects of the Federal Reserve’s interest rate hikes continue to ripple through the economy. Inflation is expected to slow in the coming months, but that could also mean the United States tips into a recession. “It will be flexible and data-driven, and can take steps to avoid a recession should the risk grow,” Pollak said about the Fed. “In addition, considering that there still are no obvious imbalances in the US economy, any recession that does materialize is likely to be reasonably mild,” Manley added. Fitch also thinks a recession could happen some time next year, although later than what Bank of America economists said.
“If that continues, it could pull us off the recession track.”Sahm expects economic slowing, even absent a full-blown downturn. “We’re seeing some softening in policy, including a 90-day https://transammansdev.websearchpro.net/what-is-coupon-rate-2/ pause on certain tariffs,” she noted. Still, market volatility, declining business confidence, and weakening consumer sentiment are adding pressure. The U.S. economy contracted in the first quarter of 2025 for the first time in three years, triggering concerns about an impending recession. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view.
While government interventions like stimulus programs or interest rate adjustments may help stabilize the economy, the effects on everyday Americans can be long-lasting. A recession can create financial strain for families, forcing them to adjust their budgets and delay major purchases. Retirement savings and investments can also suffer as stock markets decline, reducing the value of 401(k) plans and other assets. Unemployment rates typically rise, making it harder for workers to find stable employment.
“We have consistently emphasized that a slide in labor demand of this magnitude is a recession warning signal,” JPMorgan added. Coupled with the lack of any signs that unwanted separations are surging due to immigration policy, this is a strong signal that business demand for labor has cooled, they explained. But Zandi said the jobless rate is still low only because the size of the labor force has stagnated.
- Meanwhile, investors are doubting the safe-haven status of Treasury bonds, the U.S. role in the global economy, and America’s ability to govern competently.
- Making borrowing money more expensive should help cool consumer demand, resulting in slower price growth as people spend less.
- A recession is certainly not inevitable, but the path to a so-called soft landing—a cooling in economic activity that doesn’t lead to a recession—is becoming increasingly narrow.
- Negative numbers in the payroll data, especially in consecutive months, “almost always indicate that we are in a recession already or very close to one,” she says.
- “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.
- Those revisions showed that payrolls actually declined by 13,000 jobs in June—a warning sign of an impending jobs recession, says Marisa DiNatale, senior director of economic research at Moody’s Analytics.
Despite the Fed’s inflation concerns, policymakers should ease rates as they perceive the effects of tariffs on prices as being only temporary instead of persistent. “That is when the inflation fallout of the higher tariffs and restrictive immigration policy will peak, weighing heavily on real household incomes and thus consumer spending.” He points to specific indicators of a recession, including whether consumers are expecting inflation to be worse in the future, which impacts people’s spending habits, then “spills over” into the real economy. Retail sales soared in March, recovering from a dip in January and a lukewarm February, although economists attributed some of the surge to people racing to make purchases before tariffs drive up prices.A main point of contention between recession optimists and pessimists is what to make of consumer sentiment data.
The quiet economic miracle hiding in your grocery bill. “This is oil prices going down because people are like, ‘This looks really bad for growth everywhere.’” The White House has argued that Trump is bringing much-needed economic relief to American families as a result. Rather, it could be an indicator that the “global economy is going south us recession on the horizon when experts think it could hit fast,” Madowitz said.