Trade tensions have torn into the markets. With stocks sliding into correction territory in the last week, a question emerges: Is a recession next?
Traders on prediction markets — where people wager on such events as the likelihood of a recession — are increasingly betting on an economic downturn. Polymarket, for example, currently places the odds on a recession in 2025 at 40% — a sharp jump of nearly 20 percentage points in under a month.
Experts also see recessionary risks, citing trade tensions, policy uncertainty and sputtering consumer confidence. However, they caution that no single measure guarantees the future. A combination of metrics — including spending, jobs, business confidence — hint at what’s ahead. And experts note that signals aren’t red across the board: Job openings and household spending have held steady.
A recession is characterized as a widespread and significant decline in economic activity for multiple months. In the United States, a panel of experts at the nonprofit National Bureau of Economic Research (NBER) makes the call.
Simple as it sounds, this committee typically takes months to officially declare a recession, as the factors that guide this decision can lag. While waiting, economists and other market watchers monitor several signals to gauge the health of the economy. Here are some of the numbers they consult, and what those figures now show:
Consumer behavior
Consumer spending represents approximately 70% of the country’s gross domestic product. Jeffrey Frankel, an economist at the Harvard Kennedy School and one of the experts who called recessions for NBER, emphasized that consumer spending is one of the earliest and most direct indicators of economic downturn.
“Retail sales is like if you’re navigating through a foggy ocean, trying to see where the port is — the first rocks, the promise of the mainland as it comes into view — that’s retail sales,” Frankel said.
So far, data from the Census Bureau shows sales numbers have remained steady.
Consumer beliefs affect retail sales, said Menzie Chinn, a professor in the economics department at the University of Wisconsin. He notes that policy uncertainty can shake the economy.
“If enough people and enough companies put things off because of uncertainty, you can tip the economy into recession,” Chinn told NBC News. “It doesn’t happen overnight, but it multiplies out over time.”
What consumers think of the economy gives another hint of where their behavior may be headed.
“It’s all rooted in consumer confidence and business confidence,” economist Dennis Hoffman said. “All of this is a recipe for confidence erosion — when confidence erodes, consumers seize up, business owners seize up, and they don’t spend — they wait to see clarity.”
The University of Michigan’s Survey of Consumers’ Index of Consumer Sentiment showed a 10.5% decline in consumer confidence this month.
“Consumer confidence and how people feel about their future and the security of their future has a lot to do with how they act in terms of buying goods and services, investing in their businesses, hiring people to work in their businesses,” Hoffman said.
Other measures economists pay attention to include:
The cost of borrowing
There’s a metric with a strong — but not perfect — record of predicting the recessions of the past 50-plus years.
This oft-used measure compares short-term to long-term interest rates on government debt. Frequently called the Federal Reserve’s favorite recession gauge, a negative spread — or “inversion” — between long- and short-term borrowing costs has reliably preceded recessions, though there was a false alarm in 2022.
It’s now back in positive territory after a prolonged inversion that ended in late 2024.
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