As President Donald Trump escalated trade tensions with new tariffs and retaliatory threats, the stock market tumbled this week, fueling recession fears.
On Sunday, Trump addressed concerns about an economic slowdown on Fox News’ “Sunday Morning Futures,” describing the recent turmoil as “a period of transition” and saying, “It takes a little time, but I think it should be great for us.”
When asked if he thinks a recession is coming, Trump said, “I hate to predict things like that.” He later added, “Look, we’re going to have disruption, but we’re OK with that.”
If a recession happens, it would be the second in 16 years. The last one, in 2020, lasted just two months and was driven by the Covid-19 pandemic. Before that, the last prolonged downturn was the Great Recession, from 2007 to 2009.
That means many adults under 35 have never seen a drawn-out economic slowdown — one where jobs are harder to find, wages stagnate and financial choices get tougher. Here’s what to know.
What is a recession?
A recession is often defined as two straight quarters of negative GDP growth. However, the National Bureau of Economic Research (NBER), which makes the official call, looks at other indicators like employment rates, business investment and consumer spending to determine if the downturn is widespread and sustained.
However, unlike stock market crashes, recessions aren’t declared in real time. The NBER makes the call retroactively, often months after a downturn has already begun.
So, what can you expect during a recession? Businesses typically cut back on spending and investment, scale down hiring and lay off workers, setting off a ripple effect that impacts jobs, wages, consumer spending and access to credit.
While each recession is different, there are typically some commonalities:
- Businesses struggle, with bankruptcies becoming more common.
- People lose jobs as companies cut costs through layoffs or hiring freezes. Historically, unemployment rises significantly during recessions, sometimes reaching 10% in severe downturns. During the Great Recession, it peaked at 10%, leaving millions out of work.
- Stock prices fall. During past downturns, the value of retirement savings dropped sharply, making people feel poorer. A prolonged stock slump is often an early sign of a recession.
- Spending slows down. When people have less money or are afraid of losing their jobs, they tend to cut back on big purchases like cars and vacations, which hurts businesses.
- Getting a loan is harder. Banks tighten lending, making it tougher to buy a home, start a business or even get a credit card.
That said, not everything is predictable in a downturn, and the severity can vary.
While stock prices usually decline as investors brace for economic uncertainty, the housing market can be less predictable. In 2008, home values plummeted due to a housing crash, but in 2020, prices climbed as low interest rates fueled demand.
What’s happening now?
There are growing signs the economy is losing steam. Consumer debt is rising, consumer confidence is weakening and the Atlanta Fed’s GDPNow model is forecasting negative growth in 2025.
Meanwhile, escalating trade tensions — driven by new U.S. tariffs on key imports — are adding to inflation concerns, as businesses often pass those higher costs on to consumers.
Economic uncertainty has also shaken markets. Over the past two weeks, the S&P 500 has dropped about 5.9%, reflecting investor concerns about slowing growth.
Despite these warning signs, it’s too soon to say whether the economy is truly contracting or in a recession.
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