Moderating Economic Growth: No Clear Signs of A Looming Recession Yet
The comments below are an edited and abridged synopsis of an article by Josh Schafer – Reporter, Yahoo Finance
In recent weeks, the US economy has shifted from outperforming expectations to slowing growth. The Federal Reserve has revised its 2025 GDP forecast down to 1.7%, indicating that while the economy is cooling, it’s far from collapsing. Despite moderating growth, Fed Chair Jerome Powell maintains that the economy seems to be healthy and consumer spending remains solid. Wall Street’s major economic forecasts have followed suit, with firms like JPMorgan and Morgan Stanley adjusting their projections downward due to tariff policies under President Trump. However, these revisions don’t suggest an impending recession.
Goldman Sachs raised the probability of a recession in the next 12 months to 20%, a slight increase from its previous 15%. This uptick still doesn’t indicate a looming downturn, as recession probabilities are typically around 15% at any given time. Powell echoed this, stating that although recession fears have increased slightly, they are not high. Other indicators, like consumer sentiment and certain forecasting tools, have reflected growing concerns, especially due to tariff fears and policy uncertainty.
While consumer sentiment has dipped, historical data suggests that fears based on soft data, such as retail sales and sentiment surveys, often don’t align with actual economic activity. For example, in early 2022, retail sales were weak, but the data turned around in due course. Likewise, the latest S&P Global PMI data shows a slight rebound in both services and manufacturing sectors. This points to slower GDP growth, but not a catastrophic economic downturn.
Investors are now questioning if the economic slowdown has been priced into markets or if it will continue to negatively impact stock performance. Some experts argue that current signs of slowdown are typical and manageable. Consumer spending, which dropped in January, had been unsustainably high towards the end of 2024, so the cooling is not unexpected. As long as the labour market remains steady, the economic outlook for the US will likely avoid tipping into recession.
Despite these signs of moderation, the US economy’s fundamentals remain intact, and while growth may slow, there’s no clear indication of an imminent recession. For now, experts remain cautiously optimistic about the economy’s future trajectory, with a focus on how job markets and inflation will evolve in the coming months.