Recession is in the Air Everywhere!

Recent events brought a storm of news strongly confirming all the points I laid out in my weekend Deeper Dive as to why we are certainly heading deep into a recession and into rising inflation at the same time, which would be “stagflation.” All contrary to the one stock analyst I quoted in that Deeper Dive who said he just cannot see a recession anywhere in the site, nor stagflation. I ran my counter-argument. Now here are many others joining me.

The Five-Alarm Fire

Our first story points out five alarms of recession that are now sounding. Consumer confidence, as I noted in my Deeper Dive, has fallen badly. That doesn’t just indicate a recession. It tends strongly to cause a recession because, when consumer confidence plunges, people tighten their belts. Consumer spending accounts for 2/3 of the national economy. So, as the belts tighten, the economy shrinks. The most recent report showed the fourth month in a row of declining confidence in the economy.

The Expectations Index, which weighs consumers' forecasts for economic conditions in the short-term, tumbled to 65.2, the lowest reading in 12 years and below the 80-point threshold that the Conference Board said "usually signals a recession ahead…."

Preliminary results for the University of Michigan's widely watched Consumer Sentiment Index also revealed a drastic decline in Americans' economic optimism in March.

Consumer sentiment, current assessments of economic conditions, and consumers' expectations for the future deteriorated across all political affiliations and for multiple facets of the economy, with the latter dropping over 15 percent from February.

Both measures, according to KPMG's Chief Economist Diane Swonk, "show a simultaneous softening in labor market conditions and rising fears of inflation."

"The two do not tend to rise in tandem," Swonk told Newsweek, "and reinforce concerns of stagflation related to tariffs."

Credit card defaults are sky high—as in record high, worse than in our worst recessions. So, I’m not sure what the analyst I quoted was smoking that day.

U.S. credit-card debt reached a record $1.2 trillion in the fourth quarter of 2024, now comprising about 6 percent of America's total $18 trillion of debt, according to the Federal Reserve Bank of New York. Its report shows levels of serious delinquency—defined as late payments of more than 90 days—edged up in the quarter, and are now over double the levels in early 2022.

You don’t get such a record swath of defaults without being in a recession.

Business uncertainty is listed as another major recession alarm that is screaming right now because the on-again/off-again Trump Tariffs are driving, as I wrote all about this weekend, businesses are nuts!

The National Federation of Independent Business' (NFIB) Uncertainty Index climbed 4 points to 104 in February, its second-highest reading since the index began in 1973.

Again, you don’t get to such record levels without being in a recession. Show me a time when we ever did.

The percentage of respondents who believed it was a good time to expand their business experienced its steepest monthly drop since April 2020.

Which was, of course at the depth of the Covidcrash when no one thought it was a good time to expand business. Businesses everywhere were shrinking rapidly by government mandate.

And we haven’t even really started the tariffs yet. That little thrill awaits us for April 2nd, conveniently timed to not be mistaken as an April Fool’s joke. That’s important if they are going to be taken seriously, given how both of the previous implementations had the rug jerked out from under them within a day.

Naturally trade-policy uncertainty is also raised as an alarm at present because that is where most of the business uncertainty lies, though some lies in pricing due to rising inflation expectations with businesses wondering whether they’ll even be able to price in all their actual cost increases or have to take a bite out of their profit margins or even run at a loss to try to retain market share in some circumstances. The choice to run at a loss would depend on cash on hand, available credit, and mostly whether they think tariffs will go away soon.

Trade-policy uncertainty has also been crippling the stock market, though the lunatic market flushed this morning but then overflowed with enthusiasm throughout the rest of the day in spite of Trump’s statement that tariffs would be implemented with very few exceptions on all nations deserving “reciprocal” tariffs from the US on Wednesday. I guess investors thought, We might as will push this thing back up just to see if we can get an even bigger plunge on Wednesday because that is certainly what they have set themselves up for. At this point, I’d say the optimists and bulls out there must love intense pain because it's coming.

Inflation expectations have shot back up. According to the University of Michigan, year-ahead inflation expectations rose from 4.3 percent in February to 4.9 percent in March. This marks the highest reading since November 2022 and the third consecutive month of "unusually large increases" of 0.5 percentage points or more.

And this, as Wolf Richter points out in one of the articles below, fully aligning with what I’ve been saying for months now, is all BEFORE any impact from tariffs hits.

These are retail prices of durable goods consumers purchased in February, well before any tariffs reached retail prices. It’s inflation pure and simple that has been creeping up for months, bouncing between various categories of non-housing services and some goods.

Exactly. The tariff pressures will be hitting on top of this, which is why I have consistently argued there is no chance that tariffs will not cause inflation when their upward pressure on prices is hitting such an already pressurized economic environment. It is ludicrous to hear everyone on Team Trump saying otherwise. They are either stunningly ignorant or lying through their teeth.

Recession already screaming in our ears

All of these things are the points I’ve been drumming up in my own articles declaring the certainty of a bad recession. These factors are already here. People like the one I criticized this weekend need to take out the earplugs if they can’t hear any signs of recession.

That person said he saw no signs of recession or stagflation and even believed that this quarter's GDP would come in around 2%. I believe the opposite, and I pointed out, once again, that the Fed’s GDPNow gauge is nearly back down to MINUS 3%. Then, fourteen economists in a CNBC survey showed a deep plunge in their expectations, with their average estimate for the first quarter coming in at 0.3%, so within a whisper or recession levels.

Policy uncertainty and new sweeping tariffs from the Trump administration are combining to create a stagflationary outlook for the U.S. economy in the latest CNBC Rapid Update….

Core PCE inflation, meanwhile, the Fed’s preferred inflation indicator, will remain stuck at around 2.9% for most of the year

If even economists can see it, and they barely ever see a recession coming, then it should be easy for anyone else.

Says Reuters,

Stagflation on the radar for the US economy….

Recent economic projections from Federal Reserve officials had shades of "Stagflation-lite," in the words of one economist, a sentiment increasingly echoed among other observers of the U.S. economy and central bank wondering if the country's outperformance during the pandemic is about to slide.

While they say it will be “no repeat of the 70s,” I say it could easily be worse. Tariffs can easily do everything that the oil embargo did to create an “exogenous” shock that breaks down supply lines. We saw some of that during the first round of tariffs during Trump 1.0 where, for about a year, you constantly heard of supply-chain crises.

In theory, a weak economy with rising unemployment undercuts inflation, so the two should not coexist. But as with oil price shocks in the 1970s that drove prices higher, the tariff shock anticipated from Trump's trade policies now has the world guessing.

So much will depend on how far Trump goes with all of this. Will he back down again, as he has twice, and claim some minor gain was exactly all he was looking for; or is he determined to make this, as he has said he will, the new US tax revenue system? Is he going to keep using tariffs to club Canada and Denmark into submission so they will sell us their lands at a favorable price or agree to simply give up sovereignty entirely and join us? How far is he going to go with this disastrous policy—all the way into another Great Depression? Tariffs, after all, were a major, MAJOR factor in creating the Great Depression.

Depending on how far he takes this, it has the possibility of being globally catastrophic within a year.

The hints of stagflation in current forecasts aren't near as bad as the 1970s, a decade in a league of its own when a surge in the so-called "misery index" combining the unemployment and inflation rates still stands out in charts of postwar economy.

Of course, they aren’t. Most of them haven’t even gotten started yet. Wait until they have been in place for a full year if this really is Trump’s new tax system for the US, as he has said it will be. Apparently changing tax systems doesn’t even require a congressional vote, even though Congress constitutionally “controls the purse strings.” So much for that inconvenient document since Congress cowers to his influence and is willing to step out of the way!

A recent survey of Federal Reserve officials showed policymakers feel risks are [under Trump now] skewed towards higher inflation and higher unemployment than they project as their baseline.

At the very least …

Policymakers' forecasts "implied mild stagflation ahead in the near term as growth slows and inflation increases," he said, noting the "pervasive uncertainty around the size and magnitude of the trade shock…."

Growth is anticipated to slow, unemployment to rise a bit more than expected, and inflation to accelerate in the face of existing and widening tariffs.

All the things that the analyst I was critiquing this weekend said he didn’t see any sign of. How, I have no idea.

Catastrophic failure

Some see it more along the catastrophic fail level that I am seeing:

I warned that the Fed was going to break something.

Well, things are starting to break. The latest round of economic data was disastrous.

Consumer confidence collapsed to its lowest reading since January 2021. As if that wasn’t bad enough, the Expectations Index, which is based on consumers’ views on income, business and labor market conditions, COLLAPSED to 65.2.

That is the lowest reading in 12 years. And it’s WAY below 80, which is usually the level at which predicts a recession.

Similarly, the Philadelphia Fed’s non-manufacturing index imploded to NEGATIVE 32.5. This is the lowest reading since 2020 which was during a PANDEMIC.

The writing is on the wall… unless something changes FAST, something BAD is coming in the economy. And when something BAD happens to the economy, stocks get slaughtered….

“Signs of slowing in hard activity data are becoming more convincing, following an earlier worsening in sentiment,” wrote Barclays over the weekend.

At this point, expect it! A stock crash coupled with a recession led to my ten economic predictions for the year, and they keep looking closer and more foreboding by the day. The next prediction in line was rapidly soaring unemployment. That has been held up a bit by multiple court interventions, but it is still coming.

Nevertheless, that train is now nearing the station, too: (You can, at least, hear the whistle from where we stand.)

Americans haven't been this freaked out about their jobs since the Great Recession

… if you're a little uneasy about the job market, you're not alone….

Surveys from the University of Michigan reflect a similar doom-and-gloom mood toward the labor market. Consumers' expectations for unemployment over the next year are at their worst level since the Great Recession — two-thirds of them think unemployment will go up….

On paper, the labor market remains quite solid. The unemployment rate is healthy relative to history, though it's a bit elevated from recent historic lows, and layoffs remain steady. The quit rate is a little below where it was pre-pandemic, which reflects the "stay where you are" attitude, but overall, signs from "hard" data are flashing yellow….

Daniel Zhao, the lead economist at Glassdoor, told me that mentions of layoffs in the platform's employee reviews are up by 5% compared to last year and are steadily climbing. "Even if workers are still employed, that doesn't necessarily mean they are happy in their jobs," he said. Some of the commentary is from people talking about the ongoing effects of previous layoffs, expressing feelings of burnout because their workplaces are understaffed. Or, they're worried that they'll get swept up in the next round of cuts. "Employees might not see any reason why there wouldn't be another round of layoffs if they feel like the business and the economy are in a similar position," he said.

The killer may not be in the house, but he’s on the back porch.

"People are hesitant to really even expand sizably or leave their job and find other ones that are a better fit," Allison Shrivastava, an economist at Indeed, said. "Everybody's just kind of frozen, waiting and seeing."

"Employees do feel pretty uncertain about the future," Zhao said.

It’s the cost of chaos … even before the tariffs and the DOGE layoffs hit.

The word of the day is "uncertainty" — the US Economic Policy Uncertainty Index is higher than it was during the pandemic. There's a constant sense of whiplash across many parts of the economy and politics. What's happening with tariffs seems to change daily. Announcements of mass government firings and confusing reinstatements are happening constantly. Many businesses and workers expected Donald Trump's second term to look like his first one, with tax cuts and relatively unserious tariff threats and a general business-friendly stance. Instead, they're faced with a new version of Trump whose tariff gyrations are making business planning impossible and who doesn't seem to care if the stock market falls because of his actions.

The uncertainty from all the vacillation, alone, has been damaging to the economy and stocks, but the real event taking place on April 2nd, is likely to be worse. And then there will be additional retaliatory tariffs from other nations in response to our “reciprocal” tariffs. Trump is even treating all nations with value-added taxes that hit our products as nations with unfair tariffs that we must treat with a reciprocal measure. That is patently ignorant. VATs are applied to US products by foreign nations at EXACTLY the same high level those nations apply VATs to all their own domestic products. That is partly to collect the tax but is also largely to level the playing field. If they don’t charge the same VAT to US products that they charge to their own, they would be crippling all their own companies every day and giving US manufacturers a major advantage, since the VATs are often around 20%. It would be like giving special tax-free status to the US but not to their own manufacturers.

Essentially, a VAT is the government’s version of a sales tax where the government does everything it can to make ordinary sales tax as hideously complicated as possible. While I think it is the dumbest method on the planet to do sales tax (something only governments could love to inflict), it is essential that all nations that do this ridiculous form of sales tax apply the sales tax to all products equally—those produced inside the country and those coming in from outside—to keep the playing field level. Trump is apparently not capable of understanding that … or just looking for an excuse to impose high “reciprocal” tariffs all over the globe, given that 80% of all nations impose a VAT.

"So far, everything we've seen in terms of data is pretty small scale," he said. "There's nothing here that so far suggests that we've fallen into this doom loop where we're going to tip into a downturn where things are going to get worse.

Give it a year. Trump’s tariffs and terminations have barely gotten started so far. Wait unto the Supreme Court approves most of the firings or until Trump resolves the main court objection, which was that Musk didn’t have the authority to fire, but order all his cabinet members, who do have the authority, to carry out the terminations.

Most of the disruption you see now is just due to the chaos that is coming with all of this, not so much to layoffs and tariffs that actually stuck, but those are coming. Most of it is due to the stock market anticipating tariffs through all the off-and-on-and-off-and-on-again. Supposedly, the much broader tariffs will finally hit on Wednesday and then almost certainly retaliatory tariffs from other nations, and that’s when things get interesting if Trump doesn’t cave in.

Since the US is the enemy starting ALL of this, expect other nations to team up in how they impose their own measures all aimed at the US to amplify their strength.