We’re not in a recession yet—but analysts warn tariffs could push us into one

[ResidentialBusiness]

Monday’s sell-off on Wall Street sent consumers into a panic as talk of a recession continued to heat up. Most S&P 500 stocks are now in correction territory and the trade war with Canada, Mexico and China continues to heat up. Tuesday’s trading, meanwhile, was something of a roller coaster, with stocks yo-yoing and finally settling at another loss. 

The Dow fell 478 points, or 1.14%, with the Nasdaq index slipping 42 points (0.75%) and the S&P 500 largely flat, losing 32 points. 

Here’s the good news. Despite all the negative news and Monday’s sell-off, we’re not in a recession yet and it’s far from a sure thing. Consumer spending recently posted its first drop in nearly two years, but it’s still in a very healthy range.

That said, the whiplash you’re feeling is far from unjustified. Three weeks ago, stocks were at or near all-time highs and few economists were talking about a recession. These days, it’s seemingly all anyone can talk about.

What the analysts say

Goldman Sachs on Friday increased its odds of a recession over the next 12 months from 15% to 20%, writing in a note to clients that “we see policy changes as the key risk.” Put another way: Goldman is keeping a close eye on tariffs. If Donald Trump is willing to back off of them as recession risks increase, the firm wrote, a recession can be avoided. If not…

“If the White House remained committed to its policies even in the face of much worse data,” Goldman Sachs wrote, “recession risk would rise further.”

Mark Zandi, chief economist of Moody’s Analytics, is less optimistic, however. He currently puts the odds of a recession at better than one in three—but he agrees tariffs are the trigger.

“The risks of a U.S. recession starting in the coming year are uncomfortably high and rising,” he wrote in a post on X Monday. “I would put them at 35%, up from 15% at the start of the year.  For context, the typical recession probability is 15% – the U.S. economy historically suffers a recession every 6 or 7 years on average. The economy will likely suffer a downturn if the Trump administration follows through on the tariff increases it has announced and maintains those tariffs for more than a few months.”

JPMorgan is the bear of Wall Street on this particular topic, putting the odds at 40%.

Trump himself stoked fears on Sunday, when he said, “I hate to predict things like that,” when asked about the prospect of a recession, adding “there is a period of transition.”

What to watch

Technically, a recession can be declared after at least two consecutive quarters of declining economic output. So it would be July before any recession calls could be formalized. The effects of an economic downturn could be felt sooner, though.

The numbers to watch to get a sense of where the economy is going are employment (which has seen employers add between 150,000 and 200,000 jobs per month since December), wage growth (which has been outpacing inflation for almost two years) and consumer spending (which showed a 2% drop in February).

Keeping up with the fast pace of change in tariffs can be exhausting. On Tuesday alone, Trump threatened to raise tariffs on Canadian steel and aluminum imports to 50% following a decision by the Ontario government to impose a 25% tax on electricity exports to the U.S. By mid-afternoon, however, Ontario suspended its surcharge and Trump later walked back his escalation.

So rather than monitoring the day to day minutia, experts say it’s best to keep an eye on how widespread Trump’s tariffs end up being.

“Tariffs themselves, depends how you use it,” JPMorgan CEO Jamie Dimon told Stanford Graduate School of Business in an interview released last weekend. “[When used] as a tool or kind of a weapon to do—in some cases—good stuff it’s very modestly inflationary, I mean you’re talking about 0.1% or 0.2%. Now if you put 25% tariffs on all imports, that’s a lot more. That could be, in my view, quite recessionary and inflationary.”

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