Recession ahead? Why the US economy is on shaky ground under Trump

The United States economy is grappling with mixed signals, raising concerns about a possible recession in 2025. While some key economic indicators point to a slowdown, members of the Trump administration remain confident that the economy is on the right track despite certain challenges.

Recent data from the US Bureau of Labor Statistics revealed that over 150,000 jobs were added in February, marking the first full month of Donald Trump’s second presidency.

However, the unemployment rate edged slightly higher, and the labour force participation rate declined. Combined with fluctuating consumer confidence and volatility in financial markets, economists are now debating whether the US is headed toward a recession.

According to a report by Bloomberg, US consumer confidence saw its sharpest monthly drop since August 2021. The Atlanta Federal Reserve also projected that the economy could contract by 2.4 per cent in the first quarter of 2025.

Despite this, the New York Federal Reserve recently suggested the US could still experience healthy economic growth in the same quarter, intensifying the divide among economic experts.

What exactly constitutes a recession?

A recession is broadly defined as a “significant decline in economic activity spread across the economy lasting more than a few months, normally visible in production, employment, income, and other indicators,” according to Alex Jacquez, chief of policy and advocacy at the Groundwork Collective.

Jacquez, who previously served in the Biden administration’s National Economic Council, explained that recessions generally impact multiple sectors and gradually lead to lower consumer spending and rising unemployment.

“What you need to keep an economy chugging is businesses investing, businesses hiring, and people spending money,” Jacquez told TIME magazine. “If people are apprehensive about whether their jobs are going to go away or whether there are going to be more layoffs in the future, you’re gonna start to see a pullback on spending.”

The current outlook appears worrisome to some economists, as rising inflation expectations, dwindling consumer spending, and the potential impact of tariffs have all contributed to heightened uncertainty. However, predicting a recession is not always straightforward.

Is the US really heading into a recession under Trump?

The ongoing debate over a potential recession has intensified under Donald Trump’s second presidency. The administration has been implementing a series of economic measures, including major government spending cuts led by Elon Musk, who now heads the Department of Government Efficiency (Doge).

This has resulted in mass layoffs, the defunding of federal agencies, and the termination of various government contracts.

Moreover, Trump’s renewed push for global tariffs —
particularly targeting major trade partners like Mexico, Canada, and China — has further complicated the economic outlook.

The
US stock market recently experienced its worst week since the 2024 election, driven by investor fears of prolonged trade disputes and economic uncertainty.

In response to growing recession concerns,
Trump was asked in an interview with Fox News’ Sunday Morning Futures whether he anticipated a recession in 2025. “I hate to predict things like that,” Trump said.

“There is a period of transition because what we’re doing is very big—we’re bringing wealth back to America. That’s a big thing. And there are always periods of… it takes a little time. But I think it should be great for us.”

US Commerce Secretary Howard Lutnick, however, offered a more definitive response during his appearance on NBC’s Meet the Press, dismissing any likelihood of a recession. “Absolutely not,” Lutnick said.

“Anybody who bets against Donald Trump — it’s like the same people who thought Donald Trump wasn’t a winner a year ago. Donald Trump is a winner. He’s going to win for the American people. There’s going to be no recession in America.”

Lutnick also defended Trump’s aggressive trade policies, arguing that they would ultimately benefit the US economy by
“unleashing American wealth across the world.”

What role do tariffs and spending cuts play?

A major factor that has
amplified recession fears is the Trump administration’s sweeping tariff policies and government spending cuts. Trump’s tariffs have targeted key US trading partners, including China, Mexico, and Canada. These measures have created ripple effects in various industries, with many businesses unsure of future costs and trade stability.

Alex Jacquez cautioned that such unpredictable tariff policies could significantly slow down investment and job creation. The thing businesses “crave most” is certainty, he told TIME magazine. “It’s a very difficult time to invest in the United States if you don’t know what your inputs are going to cost over a month or six months from now.”

Adding to the uncertainty, Elon Musk’s drastic budget-cutting measures at the Department of Government Efficiency have triggered widespread layoffs across federal agencies.

According to the Bureau of Labor Statistics, the February unemployment rate edged higher despite
the addition of over 150,000 jobs. This has led some analysts to speculate that the labour market may soon face more turbulence.

Musk, however, remains unbothered by the Atlanta Federal Reserve’s recession forecast. Responding to the report, Musk posted on X (formerly Twitter), stating, “A more accurate measure of GDP would exclude government spending.”

This aligns with Musk’s broader agenda of reducing public spending and government intervention in the economy.

Trump has also defended his tariff strategy, posting on Truth Social that although there may be “some pain” in the short term, it would ultimately be “worth the price that must be paid” to bring manufacturing and economic power back to the US.

Has the US been here before?

The US last experienced a recession in early 2020 during the COVID-19 pandemic, which triggered widespread business closures and job losses. According to the Center on Budget and Policy Priorities (CBPP), that recession was the shortest and most severe since World War II, with a sharp contraction in economic activity.

However, significant federal government stimulus measures, including cash payments, expanded unemployment coverage, and federal eviction moratoriums, helped the economy recover rapidly.

Some economists now worry that the current economic trajectory under the Trump administration could mirror certain pre-recession patterns from 2020.

Goldman Sachs recently raised its recession probability for the US from 15 per cent to 20 per cent, citing Trump’s tariff wars, government spending cuts, and a slowing housing market. Similarly, Morgan Stanley has predicted “softer growth this year” than initially anticipated, reported AFP.

Nevertheless, Federal Reserve officials remain divided on the matter. Atlanta Federal Reserve’s real-time GDP growth tracker turned negative in early March, predicting a 2.4 per cent contraction in Q1 2025.

However, New York Federal Reserve President John Williams downplayed these concerns, at an event hosted by Bloomberg, stating that the temporary factors like harsh winter weather and global uncertainty had skewed the data.

Meanwhile, the Federal Reserve has expressed concern over inflation rather than recession. Philadelphia Federal Reserve President Patrick Harker noted that price pressures were still mounting, stating, “The progress we’ve seen in taming inflation is now at risk.”

Where does this leave the US economy?

On one hand, the Trump administration remains optimistic that its tariff policies and spending cuts will strengthen the economy in the long run.

On the other hand, economists are warning that the combination of declining consumer confidence, mass layoffs, and unpredictable trade policies could nudge the US into a recession.

The outcome may ultimately depend on whether the US economy can absorb the short-term shocks caused by the Trump administration’s economic policies — or if those shocks will tip the country into a full-fledged recession.

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With inputs from agencies