The smartest things economists are saying about a possible recession

Getty Images; Chelsea Jia Feng/BIIn the first quarter of 2025, the US economy shrank for the first time in three years.This doesn't mean a recession is here.Here's what economists say about whether a recession will materialize and its potential effects.Is a US recession going to happen soon? Economists have varying opinions.In the first quarter of this year, real US gross domestic product fell for the first time since 2022, partly due to a surge in imports as businesses prepped for tariffs from the Trump administration.That doesn't mean there's a recession, and job growth and other measures don't indicate a downturn just yet. It could take a while to see strong evidence in hard data, and the US could even avoid a recession this year.Consumer sentiment has tanked, and business optimism has dropped amid a jump in economic uncertainty. Some companies are pulling back on guidance.Here's what economists have said about the chances of a recession coming soon and how it would affect Americans.Claudia Sahm"We're on a path toward a recession, but it is clear what can get us off that path and that would be less aggressive policies," Sahm, chief economist at New Century Advisors, told Business Insider.Sahm said there has been some easing from the Trump administration, such as a 90-day pause on many tariffs."At the end of the day, it'll depend on what these policies are, but I don't think a recession is imminent," Sahm said.Sahm said even if there isn't a recession in 2025, the economy is likely to slow, and people will have to get used to some adjustments, such as a tougher job market. If there is a recession, she said it would be "not a severe drop off a cliff type of recession."Paul KrugmanKrugman, a Nobel Prize-winning economist and a CUNY Graduate Center professor, cautioned in a Substack post against reading too much into the latest GDP estimate."Remember, measured GDP shrank in the 1st quarter of 2022, and that didn't presage a recession — in fact, that was probably just statistical noise," Krugman said on Wednesday.Despite that, he warned in a Substack on Tuesday about a "disastrous effect" from the trade war."Tariffs always raise prices," Krugman said. "But the sheer size and suddenness of Trump's tariffs, combined with the paralyzing effect of uncertainty about what comes next, are about to deliver a Covid-type supply shock to an economy already sliding into recession."Torsten SløkSløk, the chief economist at asset management firm Apollo Global Management, said in a post on April 19 that "tariffs have been implemented in a way that has not been effective, and there is now a 90% chance of what can be called a Voluntary Trade Reset Recession."A chartbook from Apollo showed that this would mean a recession in the summer. But Sløk said it's not too late to avoid one. The US could form some kind of agreement with Mexico, Canada, China, and others."For Mexico and Canada, there is a unique opportunity for the US to move first and get an agreement where labor, capital, and natural resources can be efficiently used in the North American economy," Sløk said.Olu Sonola"For now, we don't have a recession in the cards," Sonola, head of US economic research at Fitch Ratings, told Business Insider. "That view is predicated on the assumption that tariff rates do not escalate further. A stagflationary shock is a more likely scenario with relatively weak growth and higher inflation; that risk has materially increased since April 2nd."Diane Swonk"We have a shallow recession starting in the second quarter and persisting through the fourth quarter," Swonk, chief economist at KPMG, told Business Insider. "The rebound is also weak, barring a major stimulus package, which could see backlash from the bond market."Swonk sees some early recession indicators flashing red. "The drop in consumer attitudes is in recession territory," she said. "The deterioration in job security we are seeing is particularly worrisome."Some Americans could be more affected by a recession than others."Inequality has worsened, with the top 10% of earners accounting for nearly half of all consumer spending," Swonk said. "Low- and middle-income households lack the cushion on savings triggered by COVID-era stimulus, which leaves them the most vulnerable to those losses."Cory StahleStahle, an economist at the Indeed Hiring Lab, said in commentary Tuesday after new job openings and turnover data that "fears of an impending recession have drowned out the calls for a soft landing. Since economic decisions are often shaped by expectations, it's possible that conditions may worsen in the coming months if people start behaving like they are in a recession. Softening some of the recent trade policy changes may ease some business concerns, but it may already be too late."Eric Rosengren Rosengren, former president of the Federal Reserve Bank of Boston and a visiting scholar at MIT, recently told Yahoo Finance there's a 50% or 60% chance of a recession, higher than earlier this year."Tariffs can both slow down growth, which causes higher unemployment, and they can also raise prices and potentially start affecting the underlying rate of inflation," he said.Dana PetersonPeterson, chief economist at The Conference Board, told Business Insider in mid-April that a recession isn't The Conference Board's base case, but the organization expects weakening growth, faster inflation, and increasing unemployment."The US actually is coming off of very strong fundamentals," Peterson said, adding that many people are working and there had been "sizable contributions from government spending on the industrial policies."David Kelly"The most likely scenario, at this stage is that, having lingered at the edge of recession, the economy slides into a shallow one later this year," Kelly, chief global strategist at J.P. Morgan Asset Management, said in a note on Monday.However, a mild recession this year could spur the government to take action, and Kelly said it "could set the stage for moderate fiscal stimulus in 2026, which, while further worsening the deficit, should be enough to restart economic growth. The Administration would likely take note of the damage done by tariffs and extreme reductions in immigration and federal government employment and could soften these policies."Desmond LachmanLachman, a senior fellow at the conservative-leaning think tank American Enterprise Institute, said in an op-ed on April 21 that there are many reasons to expect a US recession."Tariff policy-induced economic uncertainty now delays investment and consumer spending; a tax increase is hitting households in the form of higher prices; equity and bond prices are being pummeled by a loss of faith in American economic exceptionalism; and the upending of the rest of the world economy will certainly have spillover on the U.S. economy," Lachman said.Mark HamrickHamrick, a senior economic analyst at Bankrate, told Business Insider that there's a risk that a contraction continues, but it is not guaranteed."At issue is whether the consumer continues to power the economy and whether they'll have the wherewithal and desire to remain engaged as purchasers," Hamrick said. "With imports being sharply curbed and prices likely set to rise, their ability and desire to buy, not dissimilar from the supply chain disruption days of COVID, will be watched closely."Hamrick said there's "a difference between the official declaration of a recession and how consumers can feel, as affirmed by the fact that many consumers have incorrectly associated their reduction in buying power in the face of elevated prices with a recession."Read the original article on Business Insider

Comments

Business News

Free BBC TV Licence for over 66s update as campaign hits key total

I grocery shop at 4 stores because my kids have different dietary needs. It's becoming too stressful, so I'm implementing changes.

about 2 hours ago

Airbus will avoid Trump tariffs by delivering planes to US airlines in countries outside America, its CEO says

about 2 hours ago

I slept in luxury hotels and ate at high-end restaurants for free as a mystery shopper. I quit after 11 years, but it was worth it.

about 2 hours ago

Co-op cyber attack: Staff urged to keep cameras on in meetings

Comments

Business News

Free BBC TV Licence for over 66s update as campaign hits key total

Amid tariff turmoil, these warehouses are in big demand in L.A.

Starbucks and unionized baristas locked in a wage standoff

Retail plan revealed for former bank on Scottish island

Does a new dawn await Scotland's grid infrastructure?

New low-carbon solution for heating Scottish properties is in the air

Tap into the power of positive change at the All-Energy event in Glasgow

Landmark city centre development for nearly 600 student flats sold

The UK's longest and highest toboggan track could open in Scotland next year

Council must ‘come to its senses’, union chief says amid fresh bin strike talks

Elon Musk and DOGE promised $2 trillion in savings. In reality, government spending is up

Hundreds of workers at Ofgem balloted for strikes in dispute over pay and jobs

Persimmon ‘mindful’ of trade war impact but says home sales on track

Overseas demand for UK manufacturing exports sinks to five-year low

Energy firm to give thousands of households two hours of free electricity EVERY WEEK this summer

Major update on beloved steakhouse chain’s collapse as administrators reveal future of at-risk restaurant

Thousands of workers to be hit with £10 a day fees from today – how to avoid being fined

When is Amazon Prime Day 2025? Next sale is CONFIRMED for July

Full list of energy suppliers offering free solar panel grants that could save you £1,678 – are you eligible?

Home buyer mortgage approvals fell ahead of stamp duty deadline

Andre Agassi Wins And Loses In Pickleball Pro Debut As Game Sprouts

‘Absolutely False’: Musk And Tesla Chair Dismiss Report Saying Carmaker Sought To Replace CEO

Canelo Alvarez Vs. Willian Scull Fight: Odds, Picks And Predictions

Guayakí Yerba Mate Rebrands As Yerba Madre, Pushing Towards A Stronger Regenerative Future In The Rainforest

Rio Tinto investors reject call to drop London listing

Council must ‘come to its senses’, union chief says amid fresh bin strike talks

Home buyer mortgage approvals fell ahead of stamp duty deadline

Hundreds of workers at Ofgem balloted for strikes in dispute over pay and jobs

Lego moves 1500 staff to new London HQ on the South Bank

Overseas demand for UK manufacturing exports sinks to five-year low

Trump's trade war could ease the squeeze on household finances - here's why

Dunelm reduces 'beautiful' £129 lamp that's 'perfect for movie nights' to £64

DWP changes to the state pension from next year that mean payments will drop

McDonald's May bank holiday 2025 opening times - check when nearest branch is open

Kate Middleton’s go-to tinted SPF now comes in a dewy finish that’s perfect for the mini heatwave

HMRC issuing fines of up to £900 to millions of workers who missed major deadline

'Olaplex’s latest volume-boosting launch is a game-changer for fine hair like mine’

Beauty fans rave over 'scent of royalty' perfume that's now available for £10

Premium Bonds holder bags £100k prize with £175 holding

Trump says the stock market isn't his. For now, GOP senators are humoring him.

I spent years in California searching for a city that felt like home &mdash; but I finally found it when I moved to Florida

7 charts show falling shipments and weakening confidence &mdash; an ominous sign for American shoppers

My kids use AI as a tool, not a crutch. It's not going away, and I want them to know how to use it responsibly.

I grocery shop at 4 stores because my kids have different dietary needs. It's becoming too stressful, so I'm implementing changes.

Airbus will avoid Trump tariffs by delivering planes to US airlines in countries outside America, its CEO says

I slept in luxury hotels and ate at high-end restaurants for free as a mystery shopper. I quit after 11 years, but it was worth it.

Co-op cyber attack: Staff urged to keep cameras on in meetings

Premium Bonds winners announced for May's £413m prize pot – check your numbers

Ed Miliband vs Tony Blair: Labour’s civil war is back with a vengeance

Warning to anyone who has over £5,000 in bank account

Whitbread profits slide amid restaurant closures and ‘softer’ UK demand

EVs could power homes if UK suffers major power cut – think tank

Rio Tinto investors reject call to drop London listing

Major update for millions as NatWest takes on supermarket bank customers – how it affects you

Popular high street chain with 200 stores to shut another shop in fresh blow for shoppers

47% ‘keeping money stash secret from partner’

Alex Karaban Returns As UConn Aims To Rebound From Inconsistent Season

47% ‘keeping money stash secret from partner’

Whitbread profits slide amid restaurant closures and ‘softer’ UK demand

EVs could power homes if UK suffers major power cut – think tank

I spent years in California searching for a city that felt like home — but I finally found it when I moved to Florida

7 charts show falling shipments and weakening confidence — an ominous sign for American shoppers