As trade war widens, odds of recession rise
Forecasters predict higher inflation, economic slowdown
By: Paul Davidson
USA Today
..... With the stock market tumbling, consumer confidence skidding and U.S. companies ramping up layoffs, it might look like the nation is hurtling toward a recession amid President Donald Trump;s widening global trade war and federal job cuts.
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It isn't yet.
..... That mostly because American consumers are still in good financial shape and the nation;s business generally remain optimistic despite growing uncertainty about the trade conflicts and federal cuts, forecasters say.
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But trouble spots are mounting Economists are raising their inflation forecasts and downgrading their 2025 growth estimates. And some analysts say it's likely the nation will topple into a downturn if Trump moves ahead with all the tariffs he has threatened on a broad range of imported goods.
..... The gambit would sharply raise consumer prices and sap Americans' purchasing power while ratcheting up business uncertainty, experts say, curtailing investment and hiring.
..... "The economy will likely suffer a downturn if the Trump administration follows through in the tariff increases it has announced and maintains those tariffs for more than a few months," Mark Zandi, chief economist of Moody's analytics, posted on X on Monday. [03/10/2025]
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A recession is informally considered at least two straight quarters of declining economic output. But the technical definition is "a significant decline in economic activity that is spread across the economy and lasts more than a few months," according to the nonprofit National Bureau of Economic Research.
..... The measure is based on employment, income, consumer spending and industrial production, among other criteria. an economic tailspin is typically accompanied by hundreds of thousands or millions of net job losses.
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Until the past few days, many economists believed Trump was wielding tariff threats as a negotiating ploy to force foreign countries to crack down on unauthorized immigration and illegal drug flows into the U.S. or to lower their own levies on U.S. exports to those nations. Ultimately, he would back down as the economy and stock market teetered, the thinking went.
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Jonathan Millar, senior economist at Barclays, said he still believes administration officials likely will observe the effects of tariffs on the economy and stock market "and they're going to back down."
..... Trump already has socked some imports with tariffs, including a 25% levy on steel and aluminum; 20% on shipments from china; and up to 25% on goods from Canada and Mexico that aren't covered by a 2020 trade deal among the U.S. and those nations.
..... Yet the most damaging import taxes loom next month. [04/2025] those include duties on the remaining imports from Canada and Mexico not shielded by the trade agreement; a 25% fee on products such as autos, pharmaceuticals and computer chips; and sweeping reciprocal tariffs that would match whatever levies other countries charge the U.S. while also accounting for other trade barriers, such as value added taxes and government subsidies.
..... Although businesses could absorb some of the tariffs, narrowing their profit margins, economists believe most will be passed on to consumer through higher prices.
..... Zandi puts recession odds at 35%, up from 15% early this year. [2025] Goldman Sachs has bumped the changes of a slump from 15% to a still-modest 20% but only because it still belies the White house will pull back "if the downside risks begin to look more serious," JPMrogan Chase figures there's a 40% chance of a downturn.
..... The existing tariffs, the prospect of more and the possibility of several hundred thousand federal layoffs are hammering consumer confidence. last month, [02/2025] a key confidence index posted the largest monthly decline since August 2021, according to the Conference Board.
..... flagging confidence doesn't necessarily spell a big drop in consumer spending - which makes up 70% of economic activity - economist Bernard Yaros of Oxford Economics wrote in a note to clients. While purchases of discretionary items such as cars, clothing and dining out tend to slide when Americans; outlook darkens, outlays for essential such as food, housing and gasoline typically hold up, Yaros said, noting they make up 70% of all consumptions.
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Meanwhile, the economy's key pillars are still solid, U.S. employers added a respectable 151,000 jobs in February [2025] and a sturdy average of 200,000 a month since December. [2025] Average hourly wage growth is still outpacing inflation, as it has since may 2023, giving Americans more purchasing power, Yaros noted. and household balance sheets, which include debt and assets such as homes and stocks, are still on stable footing after big price run-ups the past few years, Miller said.
..... But cracks are forming. Consumers spending declined 2% in January. [2025] Paul Ashworth of Capitol Economics traced some of the drop to sever winter weather but noted early indicators of retail sales in February [2025] point to a further retreat.
..... The
benchmark S&) 500 stock index fell 2.7% Monday, [03/10/2025] compounding last week's [03/06/2025] losses, and it's down 8.7% from its record high in mid-February. [2025]
..... Also, U.S. employers announced 172,000 job cuts in February. [2025]
..... It all adds up to an economy on the edge.
..... For now, several top forecasters predict higher inflation and a more pronounced slowdown in growth that stops short of recession.
..... Contributing: Zachare Anderson, USA today