Recession Fears Grip U.S. Economy

The U.S. economy is facing a growing storm of recession fears, as both consumers and chief financial officers (CFOs) express deepening concerns about the economic outlook. The latest data from the Conference Board shows that consumer confidence has plummeted to its lowest level in over four years, driven by worries about trade policies and tariffs. Meanwhile, a CNBC CFO Council survey reveals that 60% of CFOs expect a recession in the second half of 2025, with another 15% predicting it will hit in 2026. These indicators paint a grim picture, but are they reliable predictors of an actual recession?



The current pessimistic outlook is shaped by several key indicators. The Conference Board's consumer confidence index tumbled 7.2 points to 92.9 in March 2025, the lowest level since January 2021. This decline is driven by fears of a recession and higher inflation due to tariffs. The survey's measure of future expectations hit a 12-year low, breaching a level associated with an economic downturn. This indicator is reliable in predicting a recession as it reflects the sentiment of consumers, who are the backbone of the economy. Historically, a significant drop in consumer confidence has often preceded economic slowdowns.

Inflation expectations are also on the rise, with consumers' median 12-month inflation expectations jumping to 5.1%, the highest since May 2023. This surge in inflation expectations is troubling as it indicates that consumers are anticipating higher prices, which can lead to reduced spending and investment. High inflation expectations can also lead to a self-reinforcing cycle where consumers and businesses adjust their behavior in ways that exacerbate inflationary pressures.

Trade policy uncertainty is another major factor contributing to the pessimistic outlook. President Donald Trump's fluctuating trade policies have created significant uncertainty among consumers, businesses, and investors. The on-and-off tariffs have been panned by economists for sowing confusion and uncertainty, making it challenging for businesses to plan ahead. This uncertainty is a big part of the problem, as it creates an "uncertainty tax" that can dampen economic activity. For example, David Kelly, chief global strategist at JPMorgan Asset Management, noted that "This is a very resilient economy. It can take a licking and keep on ticking. But it doesn’t like this uncertainty."

The CNBC CFO Council quarterly survey for Q1 2025 showed that 60% of CFOs expect a recession in the second half of the year, with another 15% saying a recession will hit in 2026. This is a significant shift from the previous quarter, where only 7% of CFOs thought a recession was on the calendar for 2025. The survey also showed that 90% of CFOs said policy uncertainty is having an impact on their business decision-making. This indicator is reliable as it reflects the sentiment of financial leaders who have a direct impact on business spending and investment.

The stock market has also been volatile, with the S&P 500 losing about 9% since hitting a record high on February 19, 2025. The Nasdaq plunged 4% on Monday, its biggest one-day drop since September 2022. The losses were led by the Magnificent 7, the group of seven once-unstoppable high-growth stocks. This indicator is reliable as stock market performance is often an early sign of economic uncertainty and can influence consumer and business confidence.



GDP forecasts are also a cause for concern, with the Atlanta Fed's GDPNow model forecasting negative growth in 2025. This indicator is reliable as GDP growth is a key measure of economic health. Negative GDP growth is a clear sign of a recession.

In conclusion, these indicators and data points are reliable in predicting an actual recession as they reflect the sentiment of consumers and businesses, who are the backbone of the economy. However, it is important to note that these indicators are not foolproof and should be used in conjunction with other economic data to make a more accurate prediction. The current situation is challenging, but it is not insurmountable, and there are steps that can be taken to navigate it successfully.