Recession fears are growing in the United States as the economy trended robustly toward the end of Joe Biden’s term. This shift in outlook is becoming increasingly significant.
About ten days ago, the acceleration in imports in January reflected businesses’ concerns about the risk of price increases resulting from the Trump administration’s tariffs. It was this indicator that caused the Atlanta Fed’s first-quarter GDP projection to plummet. This may seem excessive.
Stock markets are experiencing a major correction, which reflects more of a darkening economic outlook than a sign of recession.
These factors weaken the representation of the economy but generally a recession does not result.
According to UCLA specialist Ed Leamer, recessions are overwhelmingly associated with real estate and its financing. The last one was in 2008, and it was brutal. Real estate is also the reason why there were fears of a recession in 2022, with the sharp rise in interest rates.
Real estate is not currently a major source of concern, this risk can be ruled out.
The most striking thing about February and March was the shift in consumer attitudes. Consumers suddenly became anxious, as highlighted by the collapse in confidence indicators. This shift in benchmarks is also associated with a sharp rise in inflation expectations over the next five years. This measure had barely changed during the inflationary episode of 2021/2023.
Households are questioning and anticipating that the current economic policy will have a strong and lasting impact. This is the signal associated with this change of regime.
In 1990, following Iraq’s invasion of Kuwait, the American economy experienced a recession. According to Olivier Blanchard (American Economic Review, May 1992), this was due to the rapid and brutal change in the American consumer. Its consumption had unexpectedly declined compared to the usual determinants. With the conflict in Kuwait, oil was very expensive, and America was becoming the world’s policeman after the global upheaval with the fall of the Berlin Wall and the USSR.
Consumers may already realize that the world will be different with Trump in the White House. Whether it’s regarding tariffs affecting many industrial regions, immigration issues, or the labor market, particularly in federal institutions, the world is changing radically. The outlook is darkening, and households, even if they still see an increase in their income, are wondering about how the economy will evolve and, behind this, their own situation. Consumption could adjust significantly.
Is a recession possible? The answer is clearly yes.