Analysing the Recession Debate Through Market Data and Economic Indicators
The assertion by a Trump economic adviser that a US recession is “100% guaranteed” not to occur contradicts mounting evidence from key economic indicators. This analysis breaks down the conflicting signals and actionable insights for financial markets participants.
Market Volatility and Tariff Uncertainty
The S&P 500’s 12% decline from its March peak reflects tariff-induced instability:
This volatility stems from alternating tariff threats and pauses, creating whipsaw price action. However, focusing solely on tariffs ignores deeper economic vulnerabilities.
Concerning Economic Data Points
1. Consumer Sentiment: University of Michigan surveys show sentiment plunged 11% since March, with pessimism crossing all demographic groups.
2. Manufacturing Weakness: The Empire State Survey’s future conditions index hit its second-lowest reading in 20 years (-7.4%), worse than during the Global Financial Crisis (-5.1%).
3. Earnings Revisions: S&P 500 earnings downgrades are the worst since April 2020 (-48%), signalling profit pressure.
4. GDP Contraction: Atlanta Fed’s Q1 2025 estimate shows -2.3% growth, even after adjusting for gold import distortions.
Yield Curve Dynamics
The 2s-10s curve’s steepening after inversion historically precedes recessions:
This pattern typically emerges when the Fed cuts rates amid economic weakening – precisely the current scenario.
Critical Recession Indicators to Monitor
1. Initial Jobless Claims: The Fed’s 400k threshold hasn’t been breached yet, but watch the trend direction. Current readings remain below 250k.
2. Credit Spreads: Recent widening in corporate bond yields suggests growing risk aversion.
3. Labour Market Surveys: Both businesses and consumers report deteriorating job market conditions across political affiliations.
Actionable Conclusion
While no single indicator guarantees recession, the preponderance of evidence suggests elevated risks. Investors should:
• Maintain defensive equity positioning
• Increase portfolio duration as rate cuts loom
• Monitor weekly jobless claims for trend breaks above 300k
• Watch credit spreads for sustained widening
The labour market remains the linchpin – its deterioration would confirm recessionary forces are taking hold despite political assurances to the contrary.