Trade tensions are torn into the market. Questions arise when stocks slip into the realm of corrections last week. Is the recession next?
Forecast market traders – people bet on events such as the possibility of a recession – are increasingly betting on a recession. For example, Polymarket currently places odds on the recession at 40% in 2025. This is a sudden 20% point in less than a month.
Experts also see the risks of a recession, venting trade tensions, policy uncertainty, and consumer confidence. But they warn that a single measurement does not guarantee the future. A combination of metrics including spending, work and business confidence suggests what’s going forward. And experts point out that the signal is not completely red. Job openings and household expenditures are stable.
The recession is characterized as a widespread, substantial decline in economic activity over several months. In the US, a panel of experts from the Nonprofit National Bureau of Economic Research (NBER) is calling.
As it sounds simple, this committee usually takes months to officially declare a recession, as factors leading this decision could be delayed. While waiting, economists and other market watchers monitor several signals to measure economic health. Here are some of the numbers they consult with, and what those numbers are showing now:
Consumer behavior
Consumer expenditures account for approximately 70% of the country’s gross domestic product. Jeffrey Frankel, an economist at Harvard Kennedy School and one of the experts who sparked the recession in the Nber, emphasized that consumer spending is one of the earliest and most direct indicators of the economic downturn.
“Retail sales are like trying to see where the port is when you’re navigating a misty water. The first rock, the promise of visibility on the mainland – that’s the retail sales,” Frankel said.
So far, data from the Census Bureau shows that sales volumes are stable.
Menzie Chin, a professor at the University of Wisconsin’s economics department, said consumer beliefs influence retail sales. He points out that policy uncertainty can shake the economy.
“If enough people and enough businesses put things off due to uncertainty, the economy can be put into a recession,” Chin told NBC News. “It doesn’t happen overnight, but it increases over time.”
Consumers’ thinking about the economy provides another hint as to where their actions are heading.
“It’s all rooted in consumer trust and business confidence,” said economist Dennis Hoffman. “This is all a recipe for erosion of confidence. Confidence is eroded, consumers grab it, business owners grab it, they don’t spend — they’re waiting for it to become clear.”
A survey of the University of Michigan consumer sentiment index showed a 10.5% decline in consumer confidence this month.
“Consumer trust and how people feel about their future and security has a lot to do with how they act in terms of purchasing products and services, investing in their businesses, and hiring people to work in the business,” Hoffman said.
Other measurement economists pay attention to:
Borrowing costs
There is a strong, but not perfect – metric with a record – predicting a recession over the past 50 years.
This commonly used measure is compared to long-term interest rates on short-term and government debt. There were false alarms in 2022, but they are often referred to as the negative spread (or “inversion”) between long-term and short-term borrowing costs.
After a long-term inversion that ended in late 2024, it is now back in positive territory.