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Contrary to popular belief, the warning signs of a recession didn’t just show up post-January. They have been there since the heyday of the COVID-19 pandemic in the form of high inflation and a convoluted job market. But it does look like we are seeing the markers accelerate after the 2024 election.
But how do you distinguish between a natural slowing down of the economy and a full-blown recession? The truth is, it’s a slippery slope. The global economy did start to recover by 2024. But fast-forward to 2025, and America is experiencing difficult times to say the least.
Still, the word “recession” seems like a lot to say at the moment. Some of us don’t fully understand what it even means. So, today, let’s break down the recession and what it means for the U.S. going forward. You can expect us to talk about:
- Simplifying A Recession In Modern-Day Terms
- The Recession’s Effects On The Average Person
- Determining Whether The U.S. Is Heading Towards A Recession
Recession: A Crash Course
What happens in a recession?
To put it simply, a recession is a period when the general economy has been in decline for longer than a few months. During this time, we can observe a decrease in sectors such as employment, trade, and production.
The timeline to determine a recession is to observe a decline that continues past two quarters of the business year, but would take considerably longer to recover.
And it isn’t just that there is little to no growth in economic activity. A recession is characterised by negative growth in output such as a country’s GDP. This negative growth is usually followed by a marginal rise in unemployment as a product of mass layoffs because there just isn’t enough output.
Because less income is generated during this time and people have to pay back the loans they’ve taken out, household spending and business investments also cool down considerably. A recession affects the purchasing power of average civilians, such as when buying houses and property, leading to housing market crashes.
Since rising unemployment levels are one of the biggest signs of a recession, many people consider it getting better as a positive marker in recession recovery. But often, that is a false signal that betrays economic trends, a common sight in what is called a ‘technical’ recession.
However, the NBER definition is slightly different from the technical definition. The NBER, or the National Bureau of Economic Research, defines a recession as a continuous economic decline based on three criteria
- Depth: The extent to which key economic indicators decline.
- Diffusion: How far this decline is spread across different industries that are consumer/corporate/government based.
- Duration: The timeline for the decline persisting, which could last anywhere from multiple business quarters or even years.
There is no specific timeline for recovering from a recession. The International Monetary Fund does state the average recovery time as ‘1½ of the duration of the recession period itself’. But there have been cases where a recession that only lasts a couple of business quarters takes at least a couple of years before the economy stabilises.
How Do We See A Recession Coming?
There are ways you can predict an upcoming recession. The most common is to use a yield curve model as it provides empirical data in the form of an inverted slope that is a precursor to an approaching economic decline. This inverted yield curve signals that short-maturity interest rates exceed long-maturity rates, with the yield-curve slope becoming ’negative’ right before a recession.
One of the biggest factors hindering recession predictions is that the way a recession manifests has become milder over the years. The last ‘catastrophic’ recession was in the 1930s, also known as the Great Depression. But since then, recessions have been less destructive to the average person.
It’s also harder to see a recession coming because the cause might be different every single time. A recession could be triggered by inflation for inputs that help in production, such as energy. So, a sharp increase in the price of oil could be indicative of a recession. But then you look at other recession trends, and you see different causes emerge, such as the accumulation of debt and increase in asset pricing like in 2007.
Of course, the government can also trigger a recession through its actions in the world economy. Certain monetary, fiscal, or trade policies employed to ‘reduce’ inflation in the country could have the opposite effect if implemented incorrectly.
Even though economists often use multiple variables to predict a country’s economy’s future direction, no particular method guarantees accurate readings of a recession.
So, Are We In A Recession Right Now?
The U.S. has been on the heels of a recession for quite some time.
We are the largest economy in the world, but that simply means that global recession trends often mirror our own. So, when the U.S. lost 23 million jobs when the pandemic started, it was a ripple effect that affected the world economy and ushered in rumors of a recession. We then started to see better employment rates but the high inflation levels were spiraling out of control, even after the threat of COVID-19 had passed.
And then, the 2024 election happened, with the winning candidate promising an ease in the economic troubles the U.S. was facing. The solution? An onslaught of executive decisions that would overhaul key trade policies we employed, namely, tariffs.
President Trump’s tariffs have been hotly debated since the start of his term back in January 2025, but they all recently came to a head with his press conference. The press conference revealed just how much each country would be charged when trading with the U.S., which led to a coinciding stock market crash.
While we were see-sawing over a recession before, there is no questioning it now.
JP Morgan has stated that President Trump’s tariffs will cause the real GDP to contract to a growth rate of 0.3% versus +1.3% over the next full year or four business quarters. So, that is ‘negative growth over a multiple month duration’ fulfilled. They also forecast that hiring will cool down and that the unemployment rate will rise to 5.3%, so we will also see purchasing power slow down.
This is followed by more economic entities such as Citibank revising their previously high economic growth predictions and Barclays proclaiming the U.S. as ‘high risk’ for an upcoming recession. And it’s not hard to see why, considering the S&P 500 index of U.S. stocks dropped to its lowest level in 11 months in April 2025 following the new tariffs. This is despite the 90-day pause, which doesn’t apply to some tariffs like those on vehicles.
So, if it looks like a recession, reads like a recession, and behaves like a recession…
Final thoughts
While a recession is more broadly defined on paper, seeing it play out in real time makes it easier to recognise. Economic trends often fluctuate, so predicting a downturn can feel like a guessing game. But some signs are hard to ignore, even with all the unpredictability.
