How worried should you be about a recession?

Key Takeaways

• Recession fears reignited this week as a stock market sell-off put the S&P 500 into a correction.
• However, many economists believe that a full-blown economic recession is still unlikely. They expect a moderate slowdown.
• Forecasters will be watching tariffs, consumer spending and other factors that could indicate a slower than expected growth.

The stock market’s decline this week has re-ignited the recession chatter. However, it does not necessarily mean that one will be coming soon.

A full-blown depression is possible, and it seems more likely to happen after this past week. This will be the case if cautious U.S. consumers cut back on their spending and employers are forced to lay off employees. According to economists and analysts, the most likely scenario is a weaker growth. Rather than firing on all cylinders, the U.S. economy may rise at a lackluster pace instead—which isn’t great news but is far from a panic signal.

Wells Fargo economists wrote that “we believe the economy won’t slip into recession” in a recent research note. They cited as a buffer “solid fundamentals”, including healthy household balance sheets.

They noted that the economy had already “lost a little steam” in early 2025, which, when combined with tariff uncertainty, and federal government job reductions, could take its toll. 

How should you view the recent stock market sell-offs?

The S&P 500 stock index officially fell into a correction—identified as a decline of at least 10% from a recent closing high—on Thursday, as investors grew increasingly concerned about President Trump’s unpredictable tariff announcements. The swiftness of the decline has been noteworthy—the benchmark index was trading at an all-time high just over three weeks ago.

The U.S. stock market rebounded on Friday with its best one-day performance of the year, but it wasn’t enough to keep the S&P 500 from posting a weekly loss for the fourth consecutive week as investors continue to fret about the potential economic consequences of the tariffs.

Joe Brusuelas chief economist of the accounting firm RSM US LLP says that a sharp drop in stock markets “is a classic recipe for a slowdown in spending by the wealthy who drive household consumption.” When stock markets increase, the so-called “wealth effect” makes upper-income families feel wealthier, and they spend more. This boosts the economy. 

Brusuelas stated that lower stock prices have an opposite effect and wealthy households will likely reduce their spending in the current quarter. The U.S. economic system can still withstand a slowdown without going into a long-term contraction.

“The current growth panic is overstated,” Brusuelas explained. “My feeling is that we are just experiencing a late-cycle business slump.”

He expects an annual growth rate of just 1.5% for the third quarter, down from 2.5% and more in recent years. He said this was not unusual. Growth had actually dipped to negative territory at the beginning of 2022 and then continued to climb.

Tariffs could increase the chances of a recession

The economy will also be at risk over the next few months as President Donald Trump decides whether or not to proceed with tariffs against Canada and Mexico, plus impose new tariffs on goods across the globe.

“If other tariffs are imposed, we may need a step back to reassess our forecasts on growth and consumption,” Brusuelas added, adding that “waiting is hard.”

Scott Bessent, Treasury Secretary, told CNBC Thursday that he is “not worried about a little volatility over three weeks.” He said that the administration is focused on improving “the real economic situation” over the long term.

Satyam Panday, chief U.S. and Canada economist at S&P Global Ratings, sees a 25% chance of a U.S. recession in the next year as uncertainty takes a bite. 

“There's an increasing risk that supply-side shocks from tariffs, decelerating immigration growth trends, and curbs on the federal government workforce will create a lasting negative feedback loop,” Panday wrote in a research note. 

The latest jobs report shows that U.S. employers created 151,000 jobs in the month of February. The unemployment rate also remained low at 4.1%. Analysts and investors are increasingly looking at the future and ignoring data that they consider outdated.

Slower spending could be a real concern

Recent surveys show that consumers are feeling less confident. American Eagle Outfitters and Delta Air Lines are among the companies that have reported a decline in spending. 

After Trump’s election, CEOs were remarkably bullish, raising hopes for a corporate investment boom. But that too seems to have waned. Business Roundtable reported that its CEO Economic Outlook Index has returned to the levels of last year after rising to 90 following Trump’s win in November.

Chuck Robbins is the CEO of Cisco, and the chair of the Business Roundtable. He said that the survey results showed that members were cautious about the future six months, but also saw opportunities to improve their growth.

Separately, a separate survey of economists by the American Bankers Association cited increasing downside risks. However, it forecasted a GDP growth of 2,1% in 2025-2026. The group believes there is a 30% probability of a recession in this year and next.

“The consensus forecast for positive economic growth and low recession risk is based on the expectation that new tariffs won’t stay in place for all of 2025,” said Luke Tilley, chief economist at Buffalo, New York-based M&T Bank and chair of the ABA’s advisory panel of economists. “The longer tariffs remain in place, the greater the risk of a recession.”

UPDATE—March 15, 2025: This article has been updated with the latest information about the performance of the stock market.