Rising tariff worries raise US recession fears: NRF

“The possibility of a US recession in the near future has increased due to rising trade tensions and other economic factors, but it hasn’t happened yet,” Kleinhenz said. A set of Federal Reserve indexes that measure state-level economic data showed increases in 43 states and decreases in only three as of April rather than the negative growth in at least half that would be considered an indicator of recession-like conditions.

Nonetheless, what will happen going forward is difficult to predict.

“With so much uncertainty surrounding the economy in the past few months, I’m not sure anyone can predict the storm path of tariffs and their likely impact,” Kleinhenz said. “The wide range of uncertainty has introduced a high level of unpredictability and has raised the probability of a significantly slower pace for the US economy. Hiring, unemployment, spending and inflation data continue in the right direction, but at a slower pace. Everyone is worried, and a lot of people have recession on their minds.”

Kleinhenz’s comments came in the May edition of NRF’s monthly economic review, which said the economy is ‘at a pivot point’ after ending 2024 with 2.8 per cent year-over-year gross domestic product growth and falling inflation, NRF said in a press release.

“GDP contracted at an annualised rate of 0.3 per cent in the first quarter, marking the end of 11 consecutive quarters of growth and expansion in 36 of the last 40 quarters. The sudden reversal ‘has heightened fears of a recession’ and the economy has lost momentum, but the data is not yet consistent with a typical downturn,” Kleinhenz said. “Instead, the topline GDP figures overstate the weakness in the economy and are largely the result of a surge in imports during the first quarter as consumers and businesses tried to get ahead of tariffs that were announced in April.”

In contrast, overall personal spending growth came in stronger than expected at 1.8 per cent year-over-year during the first quarter. Private final sales to domestic purchasers — a measurement that focuses on consumer and business spending — were up 3.1 per cent following a 2.2 per cent gain in the prior quarter, suggesting a relatively steady pace of growth. Driven in part by pre-tariff purchasing, consumer spending on goods was up 4.1 per cent from a year earlier in March while spending on services rose an impressive 6.3 per cent.

Overall, the labour market continues to perform better than expected following the announcement of tariffs. Employers added 17,700 jobs in April and the unemployment rate remained unchanged at 4.2 per cent. Disposable personal income (income after taxes) was up 4 per cent from a year ago in March.

On the inflation front, the Personal Consumption Expenditures Price Index, the key indicator used by the Federal Reserve, showed prices were up 2.3 per cent year-over-year in March. The Employment Cost Index measure of wages, salaries and other employment costs was up 3.6 per cent year-over-year in the first quarter, which exceeded inflation but was nonetheless the slowest growth in four years.

Despite data that shows the economy ‘remains in a buoyant mode’, the Fed’s latest Beige Book report found ‘uncertainty around international trade policy was pervasive’ in all 12 Federal Reserve districts across the country.

“Well-established economic theory is very clear that tariffs raise prices for consumers, distort investment and reduce the competitiveness of firms that use non-US parts, materials and other inputs,” Kleinhenz said. “I remain concerned that the sporadic implementation of tariffs announced one day, postponed the next and maybe — or maybe not — finally imposed later is weighing on business investment and hiring, likely leading to a weak labour market that will be harmful. People are on an economic cusp, and when people worry about their jobs, their anxiety often triggers a slowdown in consumer spending.”

ALCHEMPro News Desk (RR)