The stock market is volatile, prices have soared and massive layoffs in the public sector have sparked economic fears -- to the point that many have started to worry about a possible recession.
With the stock markets plunging, consumers and businesses starting to sour on the economy, and economists are marking down their estimates for growth this year, with some even seeing rising odds of a recession.
What exactly is a recession?
A recession as a significant decline in economic activity spread across the economy, lasting more than a few months, according to the International Monetary Fund.
Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country’s real gross domestic product (GDP)—the value of all goods and services it produces. While a recession, according to this definition, can last longer than six months, recovery can even take more time, up to a few years, according to the Tax Foundation.
A sustained reduction in gross national product, high unemployment, or a decline in stock prices can all signal a possible future recession.
Recessions have occurred several times in the past four decades—the mid-1970s, early 1980s, early 1990s, and early 2000s. Since the United States is the world’s largest economy and has strong trade and financial links with many other economies worldwide, most global synchronized recessions occur at the same time as a U.S. recession.
What does a recession mean for you?
The effects of a recession cause negative chain reactions, Fidelity.com explained. For example, when a recession is on the horizon, people rein in their spending as a means of feeling more financially secure, but it in turn negatively impacts the businesses they tend to support. This causes layoffs, which obviously decreases the income that others have to spend. Because of lower spending on businesses, a company's performance in the stock market could be negatively impacted. A plunging stock market could cause more people to be even more conservative with their spending -- continuing the cycle.
Recessions may correct themselves over time or be helped along by governmental intervention.
Who determines if the U.S. is in a recession?
A recession in the United States is official when the National Bureau of Economic Research (NBER) declares the start—and eventually, end—of one.
The current economic state
THE STOCK MARKET
The tech-heavy Nasdaq stock index slipped into a correction last week, defined as a 10% drop from its most recent peak. The broader S&P 500 neared that level Tuesday.
It’s a sharp shift from just a month ago, when stock indices were at record highs and consumer sentiment was rapidly improving. Many business executives were optimistic that President Donald Trump would cut taxes and pursue deregulation, which they expected would bolster growth.
TRUMP'S TARIFFS
Instead, Trump has aggressively implemented tariffs — and tariff threats — against the United States' largest trading partners.
For now, the economy appears to be stable. Stock prices often fluctuate and sharp, temporary drops typically don't harm the economy. Most analysts still think the chances of a recession are fairly small. Goldman Sachs expects slower growth this year than last but still puts the odds of a recession at just 20%.
Still, fears of a downturn are rising as investors, economists, and business executives are realizing that Trump's import taxes are much more at the forefront of his economic policy this time than his last term in the White House. Tax cuts and deregulation appear for now to be on the back-burner. During Trump's first term, tax cuts came before the import duties.
Tariffs can slow the economy in a variety of ways: By raising prices for consumers, they can slow spending. Businesses may pull back on investing in new projects if they face higher costs from tariffs. And the uncertainty from Trump's on-again, off-again approach can also cause firms to delay hiring and investment.
“The longer the tariffs stay on, the more the risk of recession grows," says Luke Tilley, chief economist at M&T Bank/Wilmington Trust.
Trump helped spark the sharp market selloff Monday by refusing to rule out a recession during a Sunday interview on Fox Business News.
When asked whether he expected a recession this year, Trump said, “I hate to predict things like that. There is a period of transition because what we’re doing is very big. ... It takes a little time.”
Some of Trump's advisers, however, have dismissed recession concerns and have said the economy should continue to grow.
All told, Jan Hatzius, chief economist at Goldman Sachs, estimates that the average U.S. tariff on imported items could rise 10 percentage points as a result, five times the increase he imposed in his first term.
And most economists say that Trump's 2018-2019 duties did cause a downturn in the manufacturing sector. The Federal Reserve ended up cutting its benchmark interest rate three times in 2019 to shore up the economy.
Trump 's threat on Tuesday to double his planned tariffs on steel and aluminum from 25% to 50% for Canada led the provincial government of Ontario to suspend its planned surcharges on electricity sold to the United States.
As a result, the White House trade adviser Peter Navarro said the U.S. president pulled back on his doubling of steel and aluminum tariffs, even as the federal government still plans to place a 25% tariff on all steel and aluminum imports starting Wednesday.
The drama on Tuesday delivered a win for Trump but also amplified concerns about tariffs that have roiled the stock market and stirred recession risks. Tuesday's escalation and cooling in the ongoing trade war between the United States and Canada only compounded the rising sense of uncertainty of how Trump's tariff hikes will affect the economies of both countries.
ONGOING FEDERAL LAYOFFS
Other things also could take a toll on the economy: Elon Musk's Department of Government Efficiency, or DOGE, is seeking to cut tens of thousands of federal government jobs and sharply cut government spending, which could weigh on the economy.
On Tuesday, the Department of Education announced even more layoffs. The layoffs are part of a dramatic downsizing directed by Trump as he moves to reduce the footprint of the federal government. Thousands of jobs are expected to be cut across the Department of Veterans Affairs, the Social Security Administration and other agencies.
Additionally, major commercial airlines said this week that they are seeing a slowdown in government travel.
Delta Air Lines said Monday that declining consumer and business confidence amid widespread economic uncertainty is weakening demand.
