Is the U.S. officially in a recession​?

Yahoo

01-05-2025

Speculation of a potential recession has been circulating for some time, but conversations have reached a fever pitch in recent weeks.
With a new administration in the White House, economists are scrambling to predict what markets will do in response to new policies and an uncertain financial environment. ​The U.S. economy contracted by 0.3% in the first quarter of 2025 — the first decline since early 2022 — partly due to a surge in imports as businesses rushed to stockpile goods ahead of President Trump's newly announced tariffs.
Further, in late March and early April, global investment bank Goldman Sachs raised its estimate of the likelihood of a U.S. recession twice — from 20% to 35%, then up to 45%. With predictions like these (plus not-too-distant memories from the Great Recession), it's no wonder fears of another economic downturn are rising.
So, is the U.S. in a recession? If not, is a recession coming? And finally, what can you do to prepare?
A recession is a period of declining economic activity, commonly defined by at least two consecutive quarters of economic contraction. Although difficult to experience, recessions are a normal part of the economic cycle.
According to the definition above, the U.S. isn't currently in a recession. Though the economy contracted in the first quarter of 2025, the Bureau of Economic Analysis estimated the U.S. economy grew by 2.4% in the final quarter of 2024.
Time will tell what happens during the second quarter of 2025. If we experience another period of negative economic growth, the U.S. may officially be in a recession by summer.
Read more: What is GDP, and why does it matter?
Many economists, financial experts, and investment banks are predicting increasing odds of a U.S. recession in the near future. In addition to Goldman Sachs' estimation of a 45% likelihood of a looming recession, other major players are issuing similar odds. For example, the world's largest investment bank, JPMorgan, recently raised its predicted odds of a recession from 40% to 60%. And according to a CNBC Fed Survey, the risk of recession grew to 36% in March from 23% in January.
As with any uncertainty, the likelihood of an impending recession depends on who you ask. But even though downturns are impossible to predict with complete accuracy, the following metrics can provide some hints:
Consumer sentiment: Measures of consumer sentiment often correlate with the health of the economy, and a drop in consumer sentiment often precedes a recession. Currently, consumer sentiment is low: A measure from The Conference Board, a business membership group, shows consumer sentiment dropped to a 12-year low in March.
Policy uncertainty: General uncertainty can affect the economy in several ways. For example, it can lead to decreases in hiring, investing, and spending, all of which can slow the economy. Changes in the administration can bring about plenty of uncertainty, and the recent inauguration was no exception — especially regarding tariffs and trade.
Inflation: Recessions can also follow inflationary periods, which the U.S. has been experiencing over the past few years. Inflation can cause banks to raise interest rates, slowing borrowing and the economy in general. This, in turn, can lead to layoffs, a decrease in spending, higher unemployment, and, potentially, a recession.
Read more: How does inflation impact savings and CD rates?
Regardless of whether we're headed for a recession, it doesn't hurt to prepare. General financial health goes a long way during hard times, so use the following tips to get your finances in order:
Build your emergency fund: It's always smart to save cash for emergencies, but it's particularly important to have an emergency fund when a recession hits. Having plenty of cash available to make ends meet can make the difference between staying afloat and sinking into debt. If you don't have at least six months' worth of essential expenses in a high-yield savings account, make it a priority.
Audit your spending: Economic uncertainty is a good signal to audit your spending, which can help you tighten the purse strings if a recession does hit. Review your bank and credit card statements to identify unnecessary spending, forgotten subscriptions, and bills you may be able to negotiate.
Pay off high-interest debt: Having a monthly debt payment adds another bill to your budget, which can add unwelcome stress during tough financial times. If possible, put any extra money toward paying off high-interest debt, such as credit cards and personal loans. The quicker you pay off the debt, the sooner you'll have more cash to put toward savings or other goals.
Plan for big expenses: A recession is a bad time for big expenses to sneak up on you, such as an annual insurance premium or a new set of tires. Do yourself a favor and plan ahead. Add any major, irregular expenses to your budget and save for them each month. It's much easier to save $100 each month than to scramble to find $1,200 when a big bill is due.
Don't panic: If economic uncertainty and talk of a potential recession make you nervous, you're not alone. Anxiety and fear are natural reactions to the threat of financial hardship. But it's important not to let your emotions lead to drastic financial decisions, such as selling all your investments. Typically, the best thing you can do for your finances is to keep calm and stay the course.
Read more: How to recession-proof your savings