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Recession Watch

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Brandon

Recession Watch

by Calculated Risk on 4/05/2025 07:19:00 PM

I am going on “recession watch” for only the 4th time in the 20+ years that I’ve been writing this blog. In December 2022 I went on “recession watch”, but I noted “My sense is growth will stay sluggish in 2023, but the economy will avoid recession.”  And the economy did avoid recession!

The other two times were in early 2007 (housing bust / financial crisis), and in March 2020 (pandemic). And I correctly called a recession.

Mostly I’ve made fun of the persistent recession callers!

Now I’m concerned about tariff policy impacting the economy.  Usually fiscal, executive and trade policy decisions wouldn’t lead to an immediate recession, but these tariffs are a huge blunder.   There have been other unforced errors – like cutting basic research spending – but that is more of a long-term issue.

As an aside: Imagine a tech company announcing they were going to cut spending by eliminating R&D.  Their stock would plummet.  That is what the U.S. has done with some of the DOGE cuts.  

Some analysts have started forecasting a recession later this year due to the tariffs. For example, from Yahoo Finance: JPMorgan becomes the first Wall Street bank to forecast a US recession following Trump’s tariffs

JPMorgan believes the US economy will enter a recession in the back half of 2025 as the impact of President Trump tariffs takes hold in the economy.

The firm’s chief US economist Michael Feroli sees a two-quarter recession occurring in the back half of 2025 as GDP contracts by 1% in the third quarter of the year and by 0.5% in the fourth quarter. For the full-year 2025, Feroli’s team projects GDP will fall by 0.3%.
…
Feroli added that a “recession in economic activity” will push the unemployment rate up to 5.3%.

I’m not sure how to estimate the economic damage caused by these tariffs. And they might just go away (no one knows).  There are also boycotts of U.S. goods and less international tourism based on both the tariffs and the inflammatory rhetoric of the new administration.  

Economist Envy of The World

On the other hand, the U.S. economy is very resilient and was on solid footing at the beginning of the year.

So, although I’m on “recession watch”, I’m not currently predicting a recession.

These two Economist covers capture the rapid change over the last 6 months. The first is from October 2024.

Click on graph for larger image.

Just after the election, Fed Chair Powell said, “The recent performance of our economy has been remarkably good, by far the best of any major economy in the world.” 

And in December, Powell said the US economy is the “envy of other large economies around the world”.

The 2nd cover is the current edition.  “Ruination Day”.  Ouch.

Economist Ruination Day

Mostly I’ll be watching my favorite model for business cycle forecasting that uses new home sales (also housing starts and residential investment).

To conclude: I’m now on recession watch, but I’m not predicting a recession.

Source: Calculated risk blog.com | Published: 2025-04-05 23:19:00

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