Dambisa Moyo | Signs of a US recession

The US stock market’s downward trend appears to be continuing, with the Dow Jones Industrial Average and the S&P 500 down four per cent and six per cent, respectively, this year.

And this is just one of many signals that should prompt any sensible business leader, investor, or policymaker to start preparing for an economic slowdown, or even a recession, in the United States.

The first sign that a US economic slowdown may be imminent is worsening consumer sentiment. The University of Michigan’s index of consumer sentiment 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 declined by seven points in February, to 98.3. More ominous, its Expectations Index – which reflects consumers’ short-term outlook for income, business, and labour-market conditions – dropped 9.3 points to 72.9. Anything below 80 usually signals a recession ahead.

The second worrying sign for the US economy is a deteriorating manufacturing outlook. 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 the decline was a drop in the number of new orders – partly reflecting uncertainty over US tariffs – after three months of expansion.

Payroll figures – which are arguably among the most-watched market indicators (along with interest rates) – are similarly bleak. Total non-farm payroll employment rose by 151,000 in February, which not only fell short of expectations (159,000), but also came in significantly below the monthly average over the previous 12 months (168,000). At this rate, job creation may prove inadequate to support strong US growth in 2025, which the International Monetary Fund currently expects to reach 2.7 per cent.

A fourth sign that the US is headed towards a slump is that average weekly hours worked fell to a five-year low of 34.1 hours in January, and remained unchanged in February. This is consistent with a longer-term trend: weekly hours worked have been declining steadily since April 2021, when they reached a post-pandemic peak of 35 hours.

The fifth ominous signal is the quits rate, which fell from 2.0 per cent in October 2024 to 1.9 per cent in November and December. While it rose to 2.1 per cent in January 2025, the rate has been broadly declining since the Great Resignation of 2022, when job quits peaked at 3.0 per cent. This suggests that workers are apprehensive about the economy’s prospects.

Beyond these macro variables, a number of market signals are also pointing towards recession. Ten-year US Treasuries began the year with a yield of about 4.57 per cent, but recently rallied to 4.16 per cent. This represents a flight to safety, with investors choosing guaranteed income over risk assets, which would suffer more in a recessionary environment.

Another sign of declining risk appetite is investors’ retreat into gold. Prices are up 40 per cent since the start of 2024, having risen 13 per cent in the last six months alone, and are now on track to reach an unprecedented US$3,000 per troy ounce by the end of 2025. While this trend partly reflects central banks’ replenishment of their gold reserves, ordinary investors’ embrace of risk-off assets is also fuelling it. Gold-backed exchange-traded funds benefited from net global inflows of US$3 billion in January, driving their total assets under management to a new month-end record of US$294 billion.

Moreover, put options – a form of downside protection – are becoming more expensive. Market participants determine put-option pricing by looking at volatility measures, such as the three-month implied volatility for the S&P 500, which has risen recently, though it remains within a ‘normal’ level. Meanwhile, credit spreads – such as the five-year, high-yield CDX spread – are widening, as investors price in increased risk of bond or loan defaults.

Since travel spending reflects consumer and business sentiment and aligns with broader economic activity, airlines’ projections can act as a bellwether for the economy. And a recent announcement by Delta Air Lines sent a decidedly negative signal: the company cut its first-quarter revenue-growth expectations by more than half, from a maximum of 9.0 per cent to a maximum of 4.0 per cent, citing macroeconomic uncertainty. Other US airlines, including Southwest and American, soon followed with their own downbeat forecasts.

A final signal that the US economy may be in trouble is the Federal Reserve Bank of Atlanta’s GDPNow model, which projects GDP growth of negative 2.4 per cent in the first quarter. This might be excessive: for now, it appears unlikely that GDP will contract in the first quarter. But there is good reason to think that growth will fall well short of recent years’ 2.5 per cent rate.

A recession implies two consecutive quarters of negative GDP growth, which means that the US could enter one in the second or third quarter of 2025. Already, economists and financial commentators are revising their forecasts. Former US Treasury Secretary Lawrence H. Summers now puts the odds of a recession this year at 50 per cent.

But not all recessions are created equal. For the United States, the magnitude and duration of any recession would depend largely on factors that remain impossible to predict – notably, trade tariffs and geopolitics.

Dambisa Moyo, an international economist, is the author of four New York Times bestselling books, including Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth – and How to Fix It.© Project Syndicate 2025www.project-syndicate.org