April 24, 2025 — Everyone wants to know if a recession is imminent. But the most popular recession indicators are not necessarily the best places to look for the answer.
The question is front and center in the US now because of concerns over actions by the Trump Administration. Six factors currently might trigger a downturn:
- the trade war,
- crash in the US stock market,
- chaotic cuts in USG spending,
- a US fiscal crisis arising from government shutdown, debt limit stand-off, or credit downgrading,
- the blocking of net immigration, and
- increased uncertainty and risk (driven especially by the erratic rollout of US tariff policy), as reflected in sharp increases in the VIX and bond premia.
- Leading indicators
How can we tell if a recession is near? Consider as an analogy a sailing ship navigating through heavy fog, watching out for land, fearing to founder. If the lookout sights certain birds, it is more likely that land is near. Analogously, some leading indicators may signal a heightened probability of recession. But only a probability; nothing is certain.