Economic downturns don’t happen overnight. They build slowly, with warning signs appearing in different sectors before a full-blown recession takes hold. While job reports and stock market movements provide some clues, economists and analysts also look at less conventional indicators—like sales of mini liquor bottles and men’s underwear—to gauge consumer behavior and business confidence. Understanding these signals can help individuals and businesses prepare for economic turbulence before it fully materializes.
Additionally, government spending is a direct contributor to GDP, meaning that Musk inspired cuts in federal programs and employment can initially make the economy appear weaker. However, in the longer term, private industry is expected to generate more economic activity than the government reductions take away, leading to overall growth and stability.
So, are we on the brink of a recession? Some experts believe we are getting dangerously close, while others argue the economy remains resilient. Let’s explore the key indicators that might signal a downturn and where the experts stand on the issue.
Who Thinks We’re Close to a Recession?
Several economic analysts and financial institutions have raised concerns about an impending recession. Goldman Sachs recently increased its recession probability from 15% to 20%, citing policy changes as a key risk. J.P. Morgan is even more cautious, placing the chances at 40%, largely due to trade uncertainties and regulatory shifts.
Meanwhile, a forecast from the Federal Reserve Bank of Atlanta suggests that first-quarter GDP may decline by an annualized 2.4%, which would mark the first contraction since 2022. Investors are also feeling uneasy. “There are always multiple forces at work in the market, but right now, almost all of them are taking a back seat to tariffs,” said Chris Larkin, managing director at E-Trade from Morgan Stanley. Tariffs, along with government spending cuts and regulatory uncertainty, have made it harder for businesses to plan for the future.
Additionally, many business leaders have expressed growing concern. Corporate conference calls have shown a sharp drop in mentions of a “soft landing,” a term used to describe a slowdown that avoids recession. The phrase appeared in 61 U.S. company conference calls in the last quarter of 2024 but has dropped to just seven mentions so far in 2025. This suggests that business leaders are becoming less confident in the idea that the economy can slow without tipping into a recession.
Who Says We’re Not There Yet?
On the other side, the White House and some key economic analysts maintain that while growth may slow, a recession is not imminent. President Trump has downplayed recession fears, describing the current period as a “detox” phase in the transition to new economic policies. Treasury Secretary Scott Bessent echoed this sentiment, saying that the economy needs time to shift “away from public spending to private spending.”
The New York Federal Reserve remains optimistic, forecasting a 2.7% GDP growth for the first quarter of 2025. Furthermore, despite rising layoffs in certain industries, the broader labor market remains historically strong, with an unemployment rate of 4.1%. While consumer spending has shown some signs of strain, it has not collapsed, and the stock market, despite recent volatility, remains up over the past year.
Key Indicators of a Recession
Job Market Weakness
The job market is one of the earliest and most reliable indicators of economic trouble. While the U.S. has continued to add jobs, there are warning signs that a slowdown may be coming:
- Planned job cuts surged in February, reaching levels not seen since the pandemic. According to Challenger, Gray & Christmas, U.S. employers announced 172,017 planned job cuts in February, nearly triple the pace of 2024.
- Federal job losses are rising due to government cutbacks, particularly in agencies impacted by Trump administration policies. “With the impact of the Department of Government Efficiency (DOGE) actions, as well as canceled government contracts, job cuts soared in February,” said Andrew Challenger, senior vice president at the outplacement firm.
- Worker confidence has declined sharply, with fewer employees believing their company’s outlook is positive. Data from Glassdoor shows that the share of employees reporting a positive six-month outlook for their employers fell to 44.4% in February, the lowest level on record since 2016.
- Unemployment claims are ticking higher in certain regions, particularly in areas dependent on government funding. In Washington, D.C., Virginia, and Maryland, claims are up 49% year-over-year, reflecting the strain on businesses that depend on government spending.
Declining Consumer Spending
Consumer spending drives about two-thirds of the U.S. economy, making it a critical indicator of economic health. Recent trends show signs of consumer caution:
- Lower discretionary spending: Americans are cutting back on non-essential purchases. “It’s a consumer that is pinched,” said Lawson Whiting, CEO of Brown-Forman, the company behind Jack Daniel’s whiskey. Sales of smaller liquor bottles, or “nips,” have surged as consumers look for cheaper options.
- Retail shifts: Walmart reports that customers are buying smaller pack sizes at the end of the month, indicating that money is running out before payday.
- Luxury retail slowdown: High-end stores have seen fewer purchases as wealthier consumers also tighten their belts. American Eagle Outfitters CEO Jay Schottenstein noted that “fear of the unknown is weighing on customers.”
- D.C. spending slump: Unlike other regions, spending in Washington, D.C., continues to decline, likely tied to federal layoffs.
Stock Market Volatility
A declining stock market isn’t always a direct sign of a recession, but it can signal investor uncertainty. Over the past month:
- The S&P 500 has fallen more than 7%, erasing gains since Trump’s reelection.
- Tech stocks like Tesla (-36%) and Nvidia (-25%) have seen sharp declines, reflecting fears about tariffs and trade policy changes.
- Businesses are cautious about investing, with fewer hiring announcements and capital expenditures slowing.
Rising Credit Card Debt and Delinquencies
As inflation and interest rates strain household finances, more Americans are relying on credit. Warning signs include:
- Record-high credit card debt surpassing $1.21 trillion.
- Increase in late car payments, reaching the highest level since 2010.
- More hardship withdrawals from retirement accounts, as families struggle to cover emergency expenses.
Unconventional Economic Indicators
Economists also look at smaller, seemingly unrelated trends for signs of a downturn:
- Men’s underwear sales: Former Federal Reserve Chair Alan Greenspan once noted that declining men’s underwear sales could signal a downturn, as consumers put off buying basic items.
- Mini liquor bottles (“nips”) sales rise: A surge in purchases of smaller liquor bottles suggests cost-conscious consumers are looking for ways to stretch their budgets.
- Cigarette sales: More smokers are buying single packs instead of cartons, a common trend in recessions.
- Inverted yield curve: When long-term bond yields fall below short-term yields, it often signals investor fears of an economic downturn.
- Gold prices soaring: Investors flock to gold as a safe haven when they anticipate market instability. Gold recently hit a record $3,000 per ounce.
FAM Editor: Recessions have a large psychological component, if we are told to have certain expectations then that perceptions become reality. Trump has a great deal of control over that narrative. We believe that we will come close to the recession line but an actual recession will not occur.
