May 2025
Defining A Recession
Lately, we’ve had several conversations with clients regarding the state of the US economy. Given the potential impacts of tariffs, questions regarding the strength of the economy and whether we are headed towards an economic slowdown or recession persist. There are seemingly constant news updates these days relating to whether we will go into a recession.
A recession is officially defined by the National Bureau of Economic Research as a significant decline in economic activity that spreads across the economy and lasts for more than a few months. This downturn is typically noticeable in several key indicators, including a drop in real gross domestic product (GDP), an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year. Other gauges are real income, employment, industrial production, and wholesale and retail sales. Essentially, it signifies a period when the country's overall economic engine is shrinking rather than growing.
Our standpoint is that we are not headed for a recession. With the unemployment rate low, the labor market strong and first quarter earnings generally surprising to the upside, the economy appears to be in good shape at the moment. Of course, keep in mind that this is all backward-looking data and things can change pretty quickly.
Over time, the stock market is driven by company earnings (profits). Many of the most profitable businesses are in the United States (e.g. the “Magnificent 7”). In addition, many of these companies are industry leaders in new technologies (like artificial intelligence or AI) and the
productivity gains associated with them. Even if we enter a recession, it is unlikely that this narrative would change. We are likely at the beginning of a generational technology and productivity boom, and the companies leading the charge are US based. Over the long run, this should benefit the stock market.
There have been 15 recessions in the U.S. in the last 100 years. The two most recent ones were:
1. The COVID-19 Recession (February 2020 - April 2020): a very short but severe recession triggered by the onset of the COVID-19 pandemic and the widespread economic shutdowns that followed.
2. The Great Recession (December 2007 - June 2009): a prolonged and deep recession caused by the collapse of the U.S. housing market and the subsequent financial crisis. It was considered to be the most significant economic downturn since the Great Depression of the 1930’s.
In conclusion, our base case for 2025 is that the United States will not enter a recession. We acknowledge that the risks have increased and some economists estimate that there is a 60% chance. Future trade disputes, a decline in consumer confidence and possible policy shifts are all potential contributors to a pullback that could lead us into a recession. There are always risks to investing and recessions are normal parts of economic cycles. Over the long term, we believe in the American economy.
As always, please contact us at any time with questions.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.