As the constantly changing tariff policies of President Donald Trump extend to the economy, the fears of a recession invade the small independent companies and Wall Street, and the chances of the United States in front of a recession are still higher than usual.
Key data
Goldman Sachs reaffirmed his probability of a recession in the United States during the next 12 months in 45%, while the chief economist of the investment bank, Jan Hatzius, wrote on Tuesday that there is still a high probability of a “recession driven by events”.
Hatzius said that there is still “a significant risk that some of the” reciprocal ‘paused tariffs enter into force after all “, winking to the levies country per country that Trump announced on April 2, before pausing many of those tariffs a week later when the financial markets fell.
Others on Wall Street are more optimistic, as Solita Marcelli, investment director for UBS Wealth Management, who hopes that the United States avoids “a total recession this year this year as commercial agreements are agreed and the tariffs are reduced.”
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What should happen to trigger a recession?
The technical definition of recession is two consecutive quarters of negative growth of GDP, an integral measure of all goods and services produced in a country.
The United States has just registered its first negative growth quarter of GDP from 2022. While it is likely that this estimate was negatively biased by its methodology, including how it accounts for the increase in gold imports, some will probably say that there is recession if the second trimester returns to record a negative GDP.
However, the National Office of Economic Research (NBER) is the one that determines a recession, and defines it as a “significant decrease in economic activity that extends to the entire economy and lasts more than a few months.” This means that the American economy could avoid falling into a total recession, even if the GDP of the second quarter is negative, if it recovers quickly.
Does the labor market show recession signs?
Not particularly, at least not yet. Employers added more jobs than expected in April, since the unemployment rate stood at 4.2%.
Goldman predicts that unemployment will increase to 4.7% by the end of the year, but the unemployment rate has ranged between 4% and 4.2% since May 2024. The 4.2% unemployment rate is within the healthy historical norm.
A key recession indicator in the labor market is the SAHM rule, which maintains that when the average of three months of the unemployment rate increases 0.5% compared to the average of three months lower the previous year, a recession has begun.
But so far, that indicator shows a much lower probability of a recession than when it reached its maximum point last summer, which inspired a brief market settlement in August.
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Does Wall Street expect a recession?
Experts, in general, consider the possibility of a recession driven by tariffs as an air commitment.
Torsten Slok, chief economist of the Giant of Asset Management Apollo Global Management, wrote last month that he believes there is a 90% probability that United States falls into a “voluntary recession of reset of trade”, harshly criticizing Trump’s commercial policies for having been “implemented in a way that has not been effective” after its “administration inherited a strong growth”.
Bank of America Executive Director Brian Moynihan said that his bank’s base economic prognosis does not foresee a recession this year, while Morgan Stanley predicts 40% probabilities and JPMorgan Chase Chase 60%.
Lawrence Summers, former secretary of the Treasury during the mandate of President Bill Clinton, said in an editorial podcast published in April in The New York Times that he believes that “six out of 10 or more likely that a recession begins this year.”
He explained: “The pause is undoubtedly better than if we had simply continued with the catastrophic path in which we are, but anyone who thinks that the genius has returned to the bottle and that now everything is well should reconsider its posture.”
Summers predicted that this recession would leave two million most unemployed Americans, an increase of more than 28% compared to the 7.1 million unemployed in March, and a decrease of 5000 dollars or more in annual family income.
Does Trump anticipate a recession?
The Secretary of the Treasury, Scott Besent, the main economic official of the Administration, said Tuesday that “there is nothing in the data indicating that we are in recession.”
The director of the National Economic Council, Kevin Hasett, told Fox Business last month that “does not expect a recession in 2025, explaining that recent conversations with executive directors indicated that” uncertainty about tariffs “will not be a great ballast for the economy.
Trump said last week that he is not worried about a recession, while distancing himself from any possible weakness as a remnant of the economy under former president Joe Biden.
Gold and oil suggest that there are still fears of recession
The negotiation of two of the most precious raw materials in the world certainly points to the possibility of a global recession.
Gold prices have risen more than 20% this year, reaching a record of $ 3,400 per Troy ounce, thanks to the influx of investors to this historic active refuge.
On the other hand, the prices of the Brent crude, of international reference, fell this month to their lowest level since 2021, while the operators prepared for a possible weakening of the world demand for oil before the deceleration of economic activity.
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Americans prepare for possible recession
Perhaps the most worrying sign of the last days is the deterioration of the confidence of the common citizen in the economy. The Conference Board’s consumer trust survey, very followed by analysts, fell in April to its lowest level since 2020, and the consumer’s feeling survey at the University of Michigan registered, from January to April, its greatest quarterly fall since 1990.
However, the expense has been maintained, since March retail sales grew 1.4 % from January to February, according to a report published on April 16 by the Census Office, exceeding the intermennsual increase of 1.2 % projected by economists.
This article was originally published by Forbes US
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