What is a recession, and is the U.S. economy heading for one? Here's what economists say.
President Trump sparked concerns this week when he declined to rule out the possibility of a U.S. recession this year. Asked on Fox news if he expects such a slump, Mr. Trump said, "I hate to predict things like that. There is a period of transition because what we're doing is very big."
U.S. Commerce Secretary Howard Lutnick also seemed to leave open the possibility of a downturn, telling CBS News in an interview on Tuesday that Mr. Trump's economic policies are "worth it" even if they lead to a recession.
While it is notoriously hard to predict a recession, there are definitive criteria that must be met in order for a business cycle to be considered recessionary. Here's what to know.
What is a recession, and who decides if we're in one?
A recession is generally defined as a broad-based, persistent decline in economic activity. The more popular metric is that a recession is two straight quarters of negative economic growth, although in fact there's more to it than.
Recessions are identified by the National Bureau of Economic Research (NBER), a non-profit, nonpartisan research group that dates U.S. business cycles. To determine if the economy has entered a recession, NBER evaluates six key indicators: real personal income; non-farm payroll employment; employment as measured by the household survey; personal consumption; manufacturing and trade sales; and industrial production.
More specifically, NBER looks at the depth of the changes in these indicators, how broadly a slump is affecting different industries and how long a downturn lasts. The upshot: In a recession, the decline in economic activity must be significant, sustained and widespread, rather than limited to a particular sector.
Could the U.S. tumble into a recession anytime soon?
For now, economic data suggest that's unlikely. Although layoffs around the country are rising, the U.S. labor market continues to create jobs at a decent clip. Despite economic growth slowing, it's not expected to fall off a cliff. In fact, Julia Pollack, chief economist at career site ZipRecruiter, notes that four of the six signals tracked by the NBER point to continued economic expansion.
"Right now, things feel uncomfortable given the significant amount of policy uncertainty, the federal layoffs, and we've seen business, consumer and investor sentiment fray," Ryan Sweet, chief U.S. economist at Oxford Economics, told CBS MoneyWatch. "So to some it feels like the economy is in a recession, but we are not there yet."
Still, cracks are appearing that could portend a sharper downturn down the road. Retail spending, which is the lifeblood of the economy, is waning, while measures of consumer confidence show a sharp deterioration of late. Investor concerns about the Trump administration's barrage of tariffs on other nations has also slammed stock prices, which could further pressure spending.
"Negative consumption is concerning because consumer spending is backbone of U.S. economy," Pollack said. "And it's not just that spending fell. Sentiment has fallen, household budgets are squeezed and consumers are more vulnerable to shocks, which has heightened recession fears."
Sweet added, "Right now, your traditional causes of a recession aren't flashing red, but we just have this suffocating effect of all the uncertainty around trade and fiscal policy and immigration."
Lutnick, the Commerce Department chief, defends Mr. Trump's economic policies, saying they will boost economic activity.
"The only reason there could possibly be a recession is because the Biden nonsense that we had to live with. These policies produce revenues. They produce growth. They produce factories being built here," he told CBS News on Tuesday.
What signals would point to a recession?
The clearest sign would be a steady increase in job losses and a jump unemployment. In a recession, consumers pare spending and businesses pull back on investment. That typically leads to a slowdown in hiring and rise in layoffs.
The nation's unemployment rate did tick up last month, to 4.1% from 4%, though that is still quite low. But employers added 151,000 jobs, a sign that businesses are still seeking to hire workers and enough payroll gains to keep unemployment in check.
Many economists monitor the number of people who seek unemployment benefits each week, a gauge that indicates whether layoffs are worsening. Weekly jobless claims remain low.
Who is most vulnerable in a recession?
Most Americans would feel the impact of a recession in one way or another, for weaker hiring to tepid wage gains. Among people who are employed, those who entered the labor market last tend to be the first to lose their job in a recession, noted Alex Jacquez, chief of policy and advocacy at the Groundwork Collective, a left-leaning economic think tank.
"So you see the people who are hardest to reach as we reach full employment are the first to get laid off. That includes lower wage workers, black workers, Latino workers. Those who have the hardest time getting a job when times are good are first to lose jobs when times are bad," he said.
Americans who carry debt on their homes and can't make minimum payments also can face foreclosure in a downturn, locking a generation out of building household wealth.
"That's one reason why recessions are so damaging, because it's the least among us that get hurt the most when downturns come," Jacquez said.
