Could Trump be sending U.S. economy into a recession?

Could Trump be sending U.S. economy into a recession?

play

The “R” word, recession, suddenly has become a hot topic, as more Americans wonder if tariffs and other pressures might push the economy into a tailspin. It’s mostly speculation at this point, especially as the latest numbers show a generally healthy economy.

But noncommittal comments by President Trump in recent days about recession risks have increased anxiety, underscored by an ongoing stock-market swoon in recent days.

Recessions almost always are painful, though they aren’t especially common. They also can present opportunities for some people and businesses. Here are answers to what might lie ahead.

What did Trump say that raised recession worries?

Actually, it’s more what he didn’t say. The president was asked March 9 on Fox News whether he’s expecting a recession this year. Trump was noncommittal. “I hate to predict things like that,” he responded. “There is a period of transition.”

That prompted national news outlets reporting that Trump wouldn’t rule out a recession.

The White House policy of implementing tariffs against key trading partners, including Canada, Mexico and China, has created uncertainty. Prices for some goods will rise, possibly pushing up inflation, forcing many businesses to undergo painful adjustments and inviting retaliation from those nations.

But at almost the same time, Karoline Leavitt, the White House press secretary, issued a statement saying the “American economy is roaring back,” and citing recent gains in automobile manufacturing jobs. Commerce Secretary Howard Lutnick chimed in that he didn’t think a recession was in the offing.

Days earlier, Trump and the CEO of Taiwan Semiconductor Manufacturing announced a $100 billion expansion of the company’s chipmaking complex in north Phoenix — a significant new stake that will boost not only Arizona but the national economy, too. The threat of tariffs encouraged that investment.

Escalating trade tensions pose serious headwinds, but they aren’t the only factor affecting the economy.

What are recessions, and who determines when they happen?

Recessions are typically defined as periods when the national economy contracts for more than a few months. It won’t be Trump or the federal government that defines when recessions start and end but a nonprofit group of economists, the National Bureau of Economic Research. Those calls typically come many months after a slump starts and many months after it ends.

The economy is almost always in a state of change. Usually, the expansion phases, where Gross Domestic Product is rising, last much longer than the contraction phases, or recessions.

How common are recessions?

Since the end of World War II, recessions have come about every seven years on average and last about 10 months per occurrence. The longest over this stretch was the Great Recession of 2007-2009, which endured for 18 months. The shortest was the two-month blip tied to the COVID-19 pandemic. “Expansion is the normal state of the economy,” stated the NBER. “Most recessions are brief.”

Recessions bring pain in the form of layoffs, business and personal bankruptcies and delinquencies on mortgages and other fallout. The longer the contraction, the worse the damage. But recessions also can result in positive changes such as lower interest rates, a cooling-off period for inflation and a thinning out of overbuilt sectors of the economy.

Are we heading into a recession now?

That remains to be seen, though there’s little hard evidence so far, with no official declaration of a recession and considerable economic data that remain positive.

Often, a shock like an oil embargo or pronounced weakness in an industry like housing are the catalysts that push the economy over the edge, precipitating a recession. Tariffs might be the new trigger, but that’s still far from certain. A “period of transition” doesn’t necessarily mean recession.

Is there general agreement that a recession is near?

No. For example, 16 economists who work at major banks, including Chase, Wells Fargo and Bank of America, issued a joint assessment of the economy on March 7. They cited various headwinds including tariffs but didn’t cite overarching economic worries.

They pegged the odds of a recession at 30% this year and 30% in 2026, with expectations for real economic growth of 2.1% for both 2025 and 2026. They also predicted the U.S. unemployment rate will stay in a range near 4%.

In the event of a national recession, will Arizona’s economy also contract?

Yes, Arizona would almost certainly slip into a recession if the national economy did. Despite the many favorable economic trends here, including population growth and an expanding manufacturing base, Arizona wouldn’t be immune.

What about the stock market — hasn’t it been slumping?

The market, including key indicators like the Dow Jones Industrial average, has been weak lately, reacting to the tariff news and other worries, highlighted by a March 10 drop of nearly 900 points for the Dow Jones Industrial Average, putting it nearly 7% below its record high reached in December.

But steep stock-market selloffs happen from time to time and don’t necessarily presage recessions. Dave Sekera, chief U.S. market strategist at Morningstar, recently issued a report noting three straight quarters of slowing economic growth, uncertainty over tariffs and concern about rising job reductions in the federal government under Trump. But his report didn’t cite rising recession risks.

On a more positive note, Sheraz Mian of Zacks Investment Research also issued a new report underscoring his “favorable view of corporate profitability” looking ahead. As much as anything, stock prices reflect profitability.

The actions of investors, pushing stock prices up and down, sometimes presage economic downturns but usually don’t. MIT Professor Paul Samuelson once famously joked that stock market slumps have predicted nine of the last five recessions. In other words, sudden, sharp downdrafts often are false alarms or are responses to other factors such as excessively high valuations.

What can I do to prepare for a recession?

It’s always smart to keep your finances in good shape, just in case. This includes not borrowing more than you can afford and building up a reserve of cash in case of a job loss. If you’re expecting an income-tax refund, perhaps you can use this money to put these steps into place. It also might be time for improving your job skills, downsizing on your home or taking other actions.

But keep in mind that recessions often create opportunities along with pain. For example, interest rates usually decline amid periods of economic weakness, with the Federal Reserve cutting rates to stimulate the economy out of its doldrums. Prices on many assets drop, too. So, if you’re in the market for a new home, for example, you might welcome the type of buying opportunities a recession can bring. So too for other investments, like stocks.

Reach the writer at russ.wiles@arizonarepublic.com.

Source link

Visited 1 times, 1 visit(s) today

Leave a Reply

Your email address will not be published. Required fields are marked *