Assessing the Proximity of a Recession and Recognizing Its Onset
As the stock market remains volatile due to tariff uncertainties, some economists suggest the U.S. might be on the brink of a recession, a scenario not dismissed by the Trump administration. But how near are we to such an economic downturn, and how will we identify it when it happens?
Predicting a recession is notoriously challenging, but the National Bureau of Economic Research (NBER) uses specific criteria to declare a recessionary phase in the business cycle.
"A universally accepted definition of a recession doesn't exist, but the most common indicator is two consecutive quarters of negative economic growth," explained Kelly O'Grady from CBS MoneyWatch. This means the U.S. gross domestic product (GDP) would need to shrink over two successive quarters.
However, since economic growth for a quarter is only confirmed after it ends, "we wouldn't officially recognize a recession until we're already experiencing it," O'Grady noted.
Recessions typically involve rising unemployment and a marked decline in economic activity across various sectors as consumers reduce spending and businesses halt hiring. Since 1929, the U.S. has faced 14 recessions, the latest being a brief two-month downturn from February to April 2020 during the COVID-19 pandemic.
Although unemployment in the U.S. rose slightly last month to 4.1% from 4%, it remains low historically. February saw an addition of 151,000 jobs, indicating ongoing hiring efforts by businesses. Retail sales also increased in February, though not as much as anticipated.
Currently, economists don't see immediate danger signs. "The situation feels uneasy due to significant policy uncertainty, federal layoffs, and eroding business, consumer, and investor confidence," said Ryan Sweet, chief U.S. economist at Oxford Economics. "It might feel like a recession to some, but we're not there yet."
Some economists warn of a potentially worse scenario: stagflation. This term combines "stagnation" and "inflation" and describes periods when economic growth stalls while prices remain high. Typically, inflation decreases when the economy contracts.
The U.S. last faced stagflation in the 1970s and early '80s, when rising oil production costs led to inflation. Reduced consumer spending then slowed economic growth and increased unemployment.
"Stagflation is like an economic balancing act," O'Grady explained. "High inflation suggests strong demand, contributing to inflation. The government might raise interest rates to curb borrowing and reduce demand."
For now, economic indicators suggest a low risk of recession. The U.S. job market continues to grow, and consumer spending is stable.
"Unemployment is slightly higher than a year ago, and inflation is up by nearly half a percent compared to last September," O'Grady said. "These may seem minor, but combined with factors like declining consumer sentiment and spending, plus the unpredictability of tariffs, there are signs of a weakening economy. However, we haven't hit a critical point yet."
Megan Cerullo, a New York-based CBS MoneyWatch reporter, covers topics like small business, workplace issues, healthcare, consumer spending, and personal finance. She frequently appears on CBS News 24/7 to discuss her work.