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Trump’s tariff pause brings little relief as recession fears linger<\/p>\n
Donald Trump\u2019s move to postpone most of his new tariffs for 90 days seems to have brought only fleeting relief for markets. After a huge rally on April 10, April 11 saw Asian stocks head lower again.<\/p>\n
With President Donald Trump<\/a> imposing the largest tariffs<\/a> on U.S. imports in a century \u2013 raising the prospect of sharply higher consumer prices and hammering the stock market \u2013 it may feel like the nation is already mired in recession<\/a>.<\/p>\n Except on days when Trump metes out glimmers of hope. He has announced a 90-day pause<\/a> on most of his reciprocal tariffs, exempted many Canadian and Mexican shipments from 25% duties and hinted that administration officials are making progress<\/a> in tariff talks with China (a claim China has denied).<\/p>\n The whipsawing developments beg a pivotal question during a tumultuous time: Is the country headed for a recession in 2025 or not?<\/p>\n Is the 2025 recession coming?<\/p>\n Forecasters are roughly split, with nearly 4 in 10 figuring more than 50% odds of a downturn, according to a recent survey by the National Association of Business Economics.<\/p>\n Yet when the economy\u2019s course can shift on a presidential whim, experts are finding measures they\u2019ve\u00a0traditionally used to make such predictions \u2013 such as retail sales and job growth \u2013 may no longer be reliable.<\/p>\n In response, some economists are turning to more recent, real-time gauges of consumer and business behavior<\/a>, preferring to rely on what Americans do rather than what they say to chart the economy\u2019s trajectory. The numbers paint a generally positive outlook that, according to these forecasters, should allow the nation to narrowly dodge a slump.<\/p>\n Others say such data is less meaningful because it will take a few months for tariffs to filter through to consumer prices. They believe that what Americans say and how they feel about what\u2019s coming is a more accurate barometer of the turmoil that lies ahead.<\/p>\n What is the state of the US economy?<\/p>\n Last month, employers added a robust 228,000 jobs<\/a> and retail sales rose a hefty 1.4%, more than expected – two readings that typically would reflect an economy in little danger of running aground.<\/p>\n But tariff developments are moving so swiftly that such indicators effectively amount to old news. In March, Trump boosted the tariff on China to 20% and slapped a 25% duty on steel and aluminum shipments.<\/p>\n In April, he unveiled a minimum 10% fee on all imports and double-digit charges on dozens of countries before announcing a 90-day pause on the higher levies for nations other than China. Yet a hike in China\u2019s tariff to 145% more than offsets the economic benefits of the pause. A 25% tariff on imported vehicles also took effect in April.<\/p>\n Another wrinkle: Economists acknowledge the glowing retail sales figure was likely inflated by consumers \u201cfrontloading\u201d purchases \u2013 buying cars and other goods before tariffs take effect, a strategy that should lead to weaker sales in coming months.<\/p>\n \u201cA lot of the data looks great in the rear-view mirror,\u201d said Ryan Sweet, chief U.S. economist of Oxford Economics. But, he added, \u201cThings are changing so much.\u201d<\/p>\n Confronted with stale economic reports, forecasters typically turn to consumer and business sentiment data for more timely signals on how people will behave. In recent months, confidence measures for both households and companies have tumbled along with the stock market.<\/p>\n But over the past couple of years, such measures have served as less dependable signals of what people\u00a0actually do. During stretches in 2022 and 2023, consumer and business confidence slid as the Federal Reserve hiked interest rates to fight inflation. But both shoppers and firms continued to splurge.<\/p>\n \u201cThe sentiment data, at least for now, has lost all its meaning,\u201d said Joseph LaVorgna, chief economist of Nikko Securities America, who held the same title at the National Economic Council in Trump\u2019s first term.<\/p>\n Sweet and LaVorgna believe a similar dynamic could play out.<\/p>\n \u201cThe consumer is still in pretty good shape,\u201d Sweet said, noting household debt has risen but remains historically low as a share of income. Meanwhile, wage growth is still outpacing inflation, and job gains have been sturdy.<\/p>\n Those positives should provide a \u201cbuffer\u201d that softens the toll tariffs take on consumption, Sweet said, helping the U.S. narrowly avoid a tailspin.<\/p>\n At the same time, \u201cThere could be deals\u201d between the U.S. and other countries, including China, that mitigate the impact of the tariffs on consumer prices and spending, LaVorgna said.<\/p>\n Here\u2019s a look at four figures that some forecasters say point to an economy that will likely sidestep recession:<\/p>\n Jobless claims<\/p>\n First-time applications for unemployment insurance \u2013 a gauge of layoffs \u2013 rose by 6,000 the week ending April 19 but remained historically low at 222,000. In other words, employers burned by labor shortages during the pandemic are still reluctant to lay off workers despite the uncertainty spawned by the import fees.<\/p>\n If layoffs start spreading, \u201cThat\u2019s when consumers will run for the bunkers,\u201d Sweet said.<\/p>\n Indeed job postings<\/p>\n Job ads on Indeed, the leading employment board, have been roughly flat since just before the election. They barely budged in the first half of April \u2013 after Trump rolled out the reciprocal tariffs \u2012 notes economist Samuel Tombs of Pantheon Macroeconomics.<\/p>\n While hires have fallen below pre-pandemic levels after hitting record highs during the health crisis, companies are still advertising vacancies despite tariff jitters.<\/p>\n Same-store retail sales<\/p>\n Retail sales at stores open at least a year were up 7.4% on April 22 versus a comparable day a year earlier and have been posting 6% to 7% increases the past couple of months, according to Redbook Research.<\/p>\n The data is more current than the government\u2019s monthly retail sales report, but still could be flattered by Americans buying clothing, toys, or other items before tariffs kick in.<\/p>\n Restaurant diners<\/p>\n Throughout April, the number of seated restaurant diners has climbed sharply compared to a year ago, including big double-digit increases the week ending April 22, according to OpenTable, an online reservation service.\u201cTraditionally, restaurant spending\u2026 is completely discretionary,\u201d Sweet said. In other words, while consumers claim to be nervous about tariffs and the economy, they\u2019re still spending on nonessentials such as restaurant meals, movies and Broadway shows, Sweet said.<\/p>\n In mid-April, gasoline demand hit a five-month high, LaVorgna noted. “People are out and about, they’re spending money,” he said.<\/p>\n More skeptical economists say the optimists are looking at the wrong figures.<\/p>\n Households and businesses may still be spending and hiring now, but they won\u2019t when tariffs hit consumer pocketbooks around midyear, said Jonathan Millar, senior U.S. economist at Barclays.<\/p>\n Millar is dubious that deals to reduce tariffs can be reached quickly, especially with China.<\/p>\n \u201cIf we get tariffs, you\u2019re going to get pretty negative effects,\u201d said Millar, who\u2019s forecasting a mild recession by the second half of the year. \u201cIt eats into (consumers\u2019) purchasing power.\u201d<\/p>\n Here\u2019s the data these more-concerned economists say hints at trouble ahead:<\/p>\n Consumer confidence<\/p>\n Sure, consumer surveys have sent false warnings the past few years. But they\u2019ve never been quite this dismal, Millar said. In March, Americans\u2019 short-term outlook fell to the lowest level in 12 years and well below the mark that usually foreshadows recession, according to the Conference Board\u2019s consumer confidence survey.<\/p>\n And in April, the share of Americans expecting unemployment to rise over the next year was the highest since 2009, according to the University of Michigan\u2019s consumer sentiment survey. Such readings generally haven\u2019t been seen outside recessions, Millar said. Americans’ overall view of the economy and their finances fell to the lowest level since the worst of the pandemic-induced inflation run-up in mid-2022, the University of Michigan said Friday.<\/p>\n Business sentiment<\/p>\n Business surveys tell a similar story.<\/p>\n The Federal Reserve Bank of Philadelphia\u2019s manufacturing activity survey plunged to the lowest level since April 2023. And the bank\u2019s service-sector poll revealed expected declines in activity over the next six months.<\/p>\n Previous business surveys the past few years showed expectations for \u201cunchanged\u201d activity but not outright declines, Goldman Sachs wrote in a research note.<\/p>\n And when such drops in business expectations have preceded \u201cevent-driven\u201d economic slowdowns \u2013 such as the 1990 oil spike and 2001 dotcom crash \u2013 they’ve typically provided timely warnings, Goldman said. That\u2019s likely the case now with Trump’s sweeping tariffs, the research firm said.<\/p>\n The stock market<\/p>\n The S&P 500 index hasn\u2019t entered bear market territory<\/a> \u2013 defined as a drop of at least 20% from its recent market peak \u2013 but it has come within a whisker. And despite its recent rebound, the benchmark index is still down more than 10% from its record high in February, signifying a correction<\/a>.<\/p>\n Market selloffs cause many higher-income Americans whose net worth is significantly lower to reduce their spending. That’s worrisome because that group now makes up an outsize share of consumption.<\/p>\n