Allspring's Bory Revises Recession Odds Down to 40% Amid Mixed Economic Signals

The odds of a U.S. recession in 2025 have dipped to 40%, according to Allspring Global Investments’ Chief Fixed Income Strategist George Bory—a notable shift from the firm’s earlier 60% probability for 2024 and 50% forecast for 2025 in April 2024. This recalibration reflects a nuanced view of an economy balancing resilience and risks.

Key Drivers of Optimism

Bory cites three pillars supporting the revised outlook:
1. Resilient Consumer Spending: Despite high interest rates, retail sales remain stable, though lagging slightly behind all-time highs (3.23% below peak as of February 2025). Bory attributes this to steady income growth and fiscal support for small businesses.
2. Moderate Inflation: Core PCE inflation has cooled to 3.5%, below the Fed’s 2% target but still elevated. Bory notes that gradual Fed rate cuts—reducing the federal funds rate from 5.25% to 4.5% by mid-2025—have eased financial pressures.
3. Business Investment: Sectors like technology and healthcare are driving capital spending, with firms prioritizing automation and innovation.

Risks Lurking in the Shadows

Bory cautions that several threats could still derail the recovery:
- Debt Overhang: U.S. government debt exceeds $36 trillion, constraining fiscal flexibility and raising borrowing costs.
- Geopolitical Tensions: Trade disputes and energy market volatility could disrupt supply chains, particularly in manufacturing.
- Labor Market Tightness: Unemployment at 4.1% masks potential fragility: tighter immigration policies may worsen labor shortages, spiking wage inflation.

The Big Four Recession Indicators further highlight this duality:
- Nonfarm employment and industrial production remain near all-time highs, but real retail sales and personal income lag, signaling uneven consumer health.

Contrasting Views and Policy Uncertainty

While Bory’s 40% recession probability stands below broader market pessimism (which once pegged odds at 60–70%), his team emphasizes resilient small-business activity and green energy stimulus as tailwinds. This contrasts with concerns about an incoming administration’s policies, such as tax cuts or deregulation, which could reignite inflation.

Investment Implications: A Delicate Balance

Allspring’s updated outlook informs a tactical approach:
- Equities: Small- and mid-cap stocks, like those in the Russell Midcap Index, are favored due to narrowing valuation gaps and sector-specific growth.

• Fixed Income: High-quality bonds and defensive sectors (utilities, healthcare) are recommended to hedge against volatility.
• Crypto Caution: Despite $1.1 trillion inflows into crypto ETFs, Bory warns of regulatory risks and overvaluation.

Conclusion: Navigating a Tightrope Economy

Bory’s 40% recession probability and 60% “soft landing” scenario hinge on navigating a precarious equilibrium. While resilient consumer spending and Fed rate cuts offer optimism, structural risks like debt and geopolitical instability loom large. Investors are advised to prioritize diversification and risk-aware allocations, avoiding crowded trades like megacaps or speculative crypto.

As Allspring’s analysis underscores, 2025 will demand patience and agility—qualities critical in an economy where recovery is neither guaranteed nor uniform.