Are we in a recession? How to tell where the US economy is headed in 2025
- A recession is a significant decline in economic activity that can last months or even years.
- With recent stock declines, Wall Street and American consumers are fearing a recession in 2025.
- You can protect your money from a recession by building an emergency fund and diversifying your portfolio.
Whispers of a possible recession are growing louder on Wall Street — but don’t panic just yet.
The market slide comes as President Donald Trump has initiated new tariffs against US trade partners and made sweeping cuts to the federal workforce. When asked by Fox News on March 9 about the possibility of a recession, the president said, “I hate to predict things like that,” adding that he is “bringing back wealth to America.”
Still, economists and financial leaders haven’t called a recession for 2025.
Below, Business Insider breaks down how recessions are measured, how they impact consumers, and how people can best protect their wealth as the economy is slowing down.
Is the US headed for a recession in 2025?
Most measures show that the US economy isn’t in a recession. Still, the likelihood has risen slightly due to certain negative economic indicators. For example, plummeting stocks, tariffs, and declining consumer confidence have increased the probability of a recession in 2025.
Economic data has been strong recently in many respects. However, there’s still some concern that we’re not out of the woods yet in making the soft landing of lower inflation without a recession. The Federal Reserve is expected to leave the federal fund rate at 4.25% to 4.50% for now, leaving mortgage rates elevated.
The Federal Reserve Bank of Atlanta estimates that the first quarter’s GDP will decline by an annualized adjusted rate of 2.4%, making it the first quarterly contraction since 2022.
On the bright side, according to the US Bureau of Labor Statistics, the February consumer price index came in lower than expected, rising only 0.2% compared to the 0.4% increase in January. The all-item index for 12 months ending in February rose 2.8%.
The stock market
Broad measures of the stock market — the S&P 500 and Dow Jones indexes — have fallen so far in 2025. As of mid-March, the S&P 500 has dropped more than 10% into correction territory from its previous record high of 6,144.15 on February 19. The last S&P 500 correction was in October 2023.
Since the beginning of 2025, the S&P 500 is down 4.64%, the Dow Jones is down 2.7%, and the Nasdaq is down 8.79%.
The stock market isn’t a perfect measure of the overall economy, but it can reflect negative investor sentiment and uncertainty when it declines.
Unemployment rates
The unemployment rate rose to 4.1% in February compared to 4.0% in January. Unemployment has been relatively low for the past few years since hitting an all-time high of 14.7% in April 2020. It has fluctuated around 4.0-4.2% over the last few years.
Generally, unemployment rates below 5% signify a healthy economy, but this depends on the circumstances of a given period. Looking forward, massive layoffs and the impact of tariffs may increase unemployment in the near future. Organizations like The Conference Board predict rising unemployment as businesses lay off more workers in the coming months.
Yield curve
US Treasury yields are another popular indicator of a possible recession. An inverted yield curve occurs when the yield on 10-year Treasury bonds drops below the yield of two-year Treasury bonds, indicating that investors are losing confidence in the economy. That inversion can also contribute to more restrictive lending, which can cause a recession.
As of March 14, the yield curve is not inverted as the 10-year Treasury yield is 4.318% and the 2-year Treasury yield is 3.979%.
Understanding recessions
A recession is defined as two consecutive quarters (six months) of negative Gross Domestic Product (GDP). However, some argue this definition is overly simplistic as it doesn’t factor in employment, wages, and business investments.
The National Bureau of Economic Research (NBER), considered “the official recession scorekeeper,” uses a broader definition, defining a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Before declaring a recession, the NBER needs to see months or yearslong declines in job market and consumer income data. The NBER looks at various economic data points, including personal income, job growth, consumer spending, retail sales, industrial production, and other statistics on the labor market.
A recession is not the same as a depression, which is typically described as a more extended and severe version of a recession.
The original definition of a recession was popularized in a 1974 New York Times article by Julius Shiskin. In it, Shiskin says that a healthy economy expands over time, so two consecutive quarters of slowed growth suggest an underlying problem.
Who decides when a recession has started?
The NBER’s Business Cycle Committee is the authority on whether the US is in a recession. The NBER is a private, nonpartisan organization that analyzes major economic issues.
“They have a set of criteria that they use to identify a recession,” Anessa Custovic, PhD, chief investment officer of Cardinal Retirement Planning, tells Business Insider.
Economic reports tend to lag, so the economy will often be experiencing a recession for several months before the NBER officially declares it. That said, The NBER has not called an official recession since the start of the COVID-19 pandemic. Before that, the last recession was the 2007-2009 Great Recession.
How long does a recession last?
The length of a recession varies depending on the severity of the economic downturn, but it doesn’t usually last as long as most people think. NBER data finds that from 1854, the average recession has lasted about 17 months.
However, more recent data “suggests that the length of recessions are getting shorter now compared to historical ones,” says Custovic. The average length of an economic contraction in the US between 1945 to 2020 is a little more than 10 months.
The recession following the COVID-19 pandemic in 2020 lasted two months, making it the shortest on record.
Key recession indicators
A recession spans different areas of economic activity, not just GDP. Economic indicators that can foreshadow a recession include GDP growth, unemployment, consumer spending, and inflation.
However, recessions can have different causes and effects. The 2008 recession, for example, was largely caused by a collapse of the US housing bubble.
“Rarely does one closely resemble the next,” Renter said of recessions. “This makes it difficult to prepare for recessions and to identify them.”
Here are the economic indicators of a recession:
Negative GDP growth rate
Although not everyone agrees with the simpler definition of a recession being two consecutive negative quarters of GDP growth, it still tends to be a significant indicator, as GDP — while arguably imperfect — is often used as the proxy of the overall economic success of a nation. A recession usually involves negative GDP growth and other negative economic indicators like unemployment and inflation.
High unemployment rate
A high unemployment rate also tends to be a significant component of a recession. As the economy slows, businesses often lay off more workers. If the labor market is strong, like in 2022, the US may not enter a recession despite negative GDP growth.
Josh Bivens, chief economist at the Economic Policy Institute, tells BI that different parts of the economy, like the job market, won’t recover from a recession at the same rate.
“You can have job losses that persist quite a bit after an official recession ends — and you can certainly have unemployment rise well after the end of a recession,” he says.
Bivens adds that government aid programs, like the stimulus checks, can help “slingshot” a struggling economy back to health by helping Americans weather job losses and afford essentials.
Consumer spending
When consumer spending declines, it can signify a recession has or will soon occur. When consumers pull back, that affects business revenue, leading to layoffs if companies aren’t making enough to pay staff. In turn, that can create a negative cycle of even lower consumer spending if incomes fall and more people find themselves out of work.
Inflation rate
High inflation initially tends to signal the opposite of a recession because inflation often happens when the economy grows quickly. However, it can foreshadow a recession because central banks often raise interest rates to cool the economy, so inflation falls. If that slows down the economy significantly, it can lead to a recession.
The February inflation report was softer than expected, indicating that the economy is moving in the right direction despite escalated worries about the impact of tariffs. The US Bureau of Labor Statistics, noted the consumer price index showed that inflation increased by 0.2% in February, putting the annual inflation rate at 2.8%.
Expert opinions and recession forecasts
Organizations often predict the possibility of a recession based on other economic data.
The Conference Board
One prominent prognosticator is The Conference Board. The organization found consumer confidence falling the most since August 2021, with the Consumer Confidence Index dropping 7 points in February.
The Expectation Index, which measures short-term economic confidence about jobs, income, and business, fell by 9.3 points. This drop pushed it below 80, indicating a possible recession.
Bank leaders
On March 12, JP Morgan’s chief economist Bruce Kasman said there is a 40% recession risk, up from 30% at the beginning of the year.
Also, in March, Moody’s Analytics chief economist Mark Zandi told ABC News that a 35% recession is probable.
Economists at Goldman Sach raised its 12-month recession probability to 20% up from 15%.
What does a recession mean for the average person?
Sometimes, recessions are short-lived and don’t cause much long-term impact, such as how the US economy quickly bounced back from the 2020 pandemic-induced recession. Other times, however, recessions can last years, such as during the Great Recession, and the recovery can take just as long.
Job market
Recessions tend to coincide with high unemployment, as businesses conduct layoffs to account for lower revenue and growth outlooks.
For those who hang onto their jobs during recessions, wage growth can be hard to come by, as businesses are often hesitant to increase expenses during difficult economic times. Sometimes, employees are even faced with having to take pay cuts to keep their jobs during a recession.
Investment and savings
During recessions, many investments, such as the stock market and real estate, tend to decrease in value. Some investments, such as bonds and alternative assets like gold, potentially retain their value or at least don’t decline as much during recessions. It depends on the overall economic and market circumstances at the time, though.
Meanwhile, savings often decrease overall during recessions, such as when individuals who get laid off need to use their savings to navigate that period. That said, some individuals increase their savings by tightening their belts due to economic fears.
Business operations
Typically, consumer spending drops during recessions, which can cause businesses to lay off workers, close locations, halt investments, and overall scale back to try to remain as financially stable as possible. Cutting back, however, tends to create a negative cycle, as there’s less opportunity for finding jobs and starting new projects, making it harder for spending to increase and for businesses to pick back up.
Government and policy responses to recessions
When recessions occur or seem likely, several government and policy responses can help reverse the tide, such as:
- Increasing public spending: When businesses pull back, the government often spends more money to help support employment and get businesses back on track, such as through infrastructure investments, stimulus checks, and increased public sector hiring.
- Loosening monetary policy: When the economy is in trouble, the Fed typically loosens monetary policy, such as by cutting interest rates, to spur more lending and overall business investment
- Industry/job support: Often aligned with increasing public spending, the government might step in to support key industries financially, as seen with the auto industry bailouts during the Great Recession. The government might also fund job training programs to help workers reskill if certain sectors falter.
Preparing for a recession
The financial impact of a recession spreads throughout the US economy. Lower-income families often get hit the hardest, so preparing ahead of time is essential.
Personal finance tips
Preparing for a recession often requires ensuring a strong safety net. Recessions can be frightening, particularly for retirees and investors.
“People can make emotional decisions like pulling all cash out of the market when they get scared, and history has proved over and over again this is not the right thing to do,” Custovic says.
You can prepare by:
- Building an emergency fund: “This means having at least a few months’ worth of expenses saved up in case you become unemployed and need to search for a new job,” Custovic explains. “Also, I highly recommend holding off on any large-scale purchases until economic uncertainty fades.”
- Ensuring your portfolio is thoroughly diversified: At the same time, Custovic recommends evaluating any investments to ensure a good mix of assets, reducing your risk of experiencing massive losses if a few of them underperform. If you’re struggling to diversify your investment portfolio, the best stock trading apps offer a range of investment choices, market access, educational resources, and low fees.
Business strategies
Business strategies for preparing for a recession often resemble what individuals do, such as trying to keep expenses down, building up a buffer, and diversifying income streams if possible.
One way businesses might try to avoid recessionary problems is by being careful about hiring too quickly so they don’t overspend and need to do large layoffs, which can have a negative reputational effect.
Recession FAQs
A recession is a significant period of economic decline, typically when the economy shrinks. A recession is also defined as two consecutive quarters of negative GDP, but many economists view a recession as more widespread and requiring a significant rise in unemployment.
No. The US is not in a recession, as the economy appears stable. However, stock market volatility, tariffs, and declining consumer confidence have slightly increased the chances of a recession.
In a recession, unemployment rates rise as companies lay off workers to cut costs, stock prices fall, and consumer spending declines as people have less money.
Recessions last an average of 17 months, according to the NBER. However, that number has been shrinking. The length can still vary from around a few months to a few years, depending on the severity of the recessions and the responses from governments and others.
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