Recession?

As of today, the United States is not officially in a recession, but several indicators suggest growing risks of one developing. Consider the following:

• In the first quarter this year, the US economy contracted by an estimated 3.7%, according to the Atlanta Fed’s GDP Now model.

• After five consecutive months of decline, the consumer confidence index rebounded in May. This bump followed a temporary truce in the US-China trade war. It appears to be reactionary rather than a long-term confidence rebound.  We anticipate a continued weakening of consumer confidence.

• While the unemployment rate remains around 4.1%, there are signs of labor market stress. Job postings are taking longer to fill, and sectors like health care, government, and technology are experiencing increased layoffs and hiring freezes.

• Inflation remains above the Federal Reserve’s 2% target. The Federal Reserve chair remains concerned that tariff activity and impulsive economic policies could dampen economic activity and continue to drive down the value of the dollar, leading to ongoing inflationary pressures. As a result, it appears unlikely the Federal Reserve will take steps to lower interest before Q4 this year.

No two recessions or expansions have ever been the same. This adds to the complexity of economic forecasting.

Analysts at Goldman Sachs have raised the probability of a U.S. recession in 2025 to 25%, up from 15% previously. They note that while the risk is increasing, it remains limited due to the Federal Reserve's ability to adjust interest rates to support the economy.

Unfortunately, this highlights how the Fed has the ability to put a “band-aid” on the problem. Corporate and government capital expenditures in 2025 appear weaker than in 2024. High interest rates, political instability, and cautious consumer spending will continue to dampen CapEx in the United States. While we may avoid a recession, weaker CapEx will dampen economic growth in the future.