Are We Now in a Recession but Don’t Know It? – The American Spectator | USA News and PoliticsThe American Spectator

Amidst the recent pyrotechnics in the Oval Office and disappointing performance of President Zelenskyy, the radical and dramatic approach to government right-sizing, the consternation over the imposition of tariffs, the disgraceful conduct of Congressional Democrats who during the president’s address to a joint session of Congress would not stand for a 13-year-old brain cancer survivor, and the incessant caterwauling of the Left who do not understand that they actually lost the election, it is easy to miss the possibility that we are already in a recession but don’t know it.

A recession is typically defined as two successive quarters of declining GDP. Accordingly, we will not be in a position to know if one has arrived until an advance estimate of GDP is announced in July and then refined in August. In the meantime, there are now various signals that appear consistent with the arrival of a recession. Admittedly, these are still early days.

While it is hard to believe that President Trump will preside over 20-25 percent tariffs against China, Canada, and Mexico on a sustained basis, given their vast destructive power, the imposition and then reversal (followed by the threat of a 250 percent duty on Canadian dairy products) have already caused uncertainty and carnage on Wall Street. (RELATED: Tariffs: The Hammer America Keeps Using)

The Dow Jones Index is off over 5 percent since its Dec. 4 high, the S&P 500 almost that, and the technology-heavy NASDAQ is off over 8 percent since then. These contractions can affect consumer behavior and well-being since over 60 percent of Americans own stock, according to a Gallup poll.

Nonetheless, it is imperative that the U.S. rectify its massive trade deficit of over $1 trillion. While deficits mean the consumer has freedom of choice, and while they may result in some reinvestment in the U.S., given the magnitude that we have, they are destabilizing and signify that foreign financial institutions and central banks have trillions of dollars of claims on the U.S. treasury and banking system — and their need for dollar denominated assets only makes it easier for our treasury to run budget deficits.

The massive FY 2024 deficit of $1.8 trillion was over a fourth of the $6.8 trillion federal budget, and at 7.1 percent of current GDP, it is second only to Italy among the G7. Unfortunately, so concerned with the effect of tariffs on their business models and gross margins, U.S. companies will delay hiring and investment decisions. Strategic initiatives will be deferred until there is more certainty — this hesitation will not bode well for economic growth.

In the employment sector, all is also not well. The economy added 151,000 jobs in February, a moderate performance and slight increase since January but well below the robust 307,000 in December. But what is most concerning are the layoffs: There were over 170,000 in February alone, with nearly 40 percent due to action by DOGE, according to the leading outplacement and career counseling firm, Challenger, Gray & Christmas.  This was the highest level of cuts since February 2008, shortly after the wreckage of the mortgage industry took down part of Wall Street and other financial institutions.

In the household sector, aggregate delinquency rates increased only slightly in the fourth quarter of 2024 to 3.6 percent, according to Federal Reserve data; however, this is still the highest level in five years, and it is the rate of change that matters from this point. However, by an estimate of the Conference Board, the Consumer Confidence Index in February fell seven points to the lowest level since August 2021.

Another Expectations Index from the same source fell below 80, typically signaling recession. Moreover, we should note that the yield curve, a graph depicting how interest rates change for U.S. treasury securities of different maturities, has recently been negative in ranges out to two years, and this phenomenon is often a sign of impending recession.

Other disturbing data is a March 3 report of the Atlanta Federal Reserve Bank advising that first quarter GDP declined 2.8 percent, adjusted downward from 1.5 percent a few days earlier.

However, Federal Reserve Chair Jerome Powell stated on Friday that the Fed is staying the course for now until the effects of the Trump administration’s policies are clearer.

For years, the American consumer has supported the economy, while some indicators were discouraging. However, reduced brokerage and 401(k) account balances, continuing layoffs in the news, concern over tariffs, and declining confidence could become a tipping point. And we can be sure that mainstream media will do its best to instill fear.

As Bette Davis reminded us in All About Eve, “Fasten your seat belts, it’s going to be a bumpy night.”

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Frank Schell is a business strategy consultant and former senior vice president of the First National Bank of Chicago. He was a lecturer at the Harris School of Public Policy, University of Chicago, and is a contributor of opinion pieces to various journals.