The U.S. stock market’s downward trend appears to be continuing, with the Dow Jones Industrial Average and the S&P 500 down 4% and 6% respectively since the beginning of the year.
And that’s just one of many signs that should prompt any sensible business leader, investor or policymaker to start preparing for an economic slowdown in the U.S. – or even a recession.
1. The first sign that a slowdown in the U.S. economy may be imminent is a deterioration in consumer sentiment.
- The University of Michigan’s consumer sentiment index fell from 71.7 in January to 64.7 last month, its lowest level since November 2023.
- Similarly, the Conference Board’s Consumer Confidence Index fell seven points in February to 98.3.
- Even more worrisome, the Expectations Index – which reflects consumers’ short-term expectations for income, business and labor market conditions – fell 9.3 points to 72.9. Any reading below 80 typically signals an impending recession.
2. The second worrying sign for the U.S. economy is the worsening outlook for the manufacturing sector.
- The ISM Manufacturing Index fell from 50.9 in January to 50.3 last month – below market expectations of 50.5.
- A key reason for this decline was a drop in new orders – partly attributed to uncertainty over US tariffs – after three months of growth.
3. Equally ominous are developments in wage data, which are considered one of the most closely watched market indicators (along with interest rates).
- Total non-farm payrolls rose by 151,000 in February, not only below expectations (159,000), but also significantly below the monthly average of the previous 12 months (168,000).
- At this rate, job creation may prove insufficient to support strong U.S. growth in 2025, which the International Monetary Fund currently forecasts at 2.7%.
Further signs of economic slowdown in the US
4. A fourth sign that the US is heading for a recession is the decline in average weekly hours worked, which fell to a five-year low of 34.1 hours in January and remained unchanged in February.
This is consistent with a long-term trend: weekly hours worked have been falling steadily since April 2021, when they had reached a post-pandemic high of 35 hours.
5. The fifth worrying sign is the quits rate, which fell from 2% in October 2024 to 1.9% in November and December.
Although it rose to 2.1% in January 2025, this indicator has been on a general decline since the Great Recession of 2022, when it peaked at 3%. This suggests that workers are cautious about the economic outlook.
Several market indicators also point to the risk of a recession
6. Ten-year US Treasuries started the year with a yield of around 4.57%, but recently fell to 4.16%.
This reflects a flight to safety, as investors choose guaranteed income over risky assets, which are hit harder in a recessionary environment.
7. Another sign of reduced risk appetite is investors’ shift to gold.
Prices have risen by 40% since the start of 2024, up 13% in the past six months alone, and are now on track to reach an unprecedented $3,000 per ounce by the end of 2025. While this trend is partly driven by central banks replenishing their gold reserves, the increased preference of private investors for safe assets is also fueling this momentum.
8. Gold-backed exchange-traded funds (ETFs) saw net global inflows of $3 billion in January, pushing their total assets to a new all-time high of $294 billion at the end of the month.
9. In addition, put options – a mechanism for hedging against a market downturn – are becoming increasingly expensive.
Put options are priced based on volatility measures, such as the three-month implied volatility of the S&P 500, which has recently risen, though remains within normal limits.
10. At the same time, credit spreads – such as the five-year high-yield CDX spread – are widening as investors factor in the increased risk of default on bonds or loans.
11. And a recent announcement from Delta Air Lines sent a decidedly negative message: the company cut its first-quarter revenue growth forecast by more than half – from a maximum of 9% to a maximum of 4% – citing macroeconomic uncertainty.
Shortly after, other US airlines, such as Southwest and American Airlines, followed suit with similarly pessimistic forecasts.
12. A final sign that the US economy may be in trouble comes from the Atlanta Federal Reserve’s GDPNow model, which projects negative growth of 2.4% for the first quarter. This estimate may be an exaggeration, as it currently seems unlikely that GDP will contract in the first quarter.
13. However, there are strong reasons to believe that growth will be well below the average annual rate of 2.5% in recent years.
A recession is defined as two consecutive quarters of negative GDP growth, meaning the U.S. could enter a recession in the second or third quarter of 2025.
Former U.S. Treasury Secretary Lawrence H. Summers now estimates that the probability of a recession in 2025 is 50%.
Not all recessions are the same, however. For the U.S., the severity and duration of a potential recession will depend largely on factors that are impossible to predict, such as trade tariffs and geopolitical developments.
Please follow and like us:
