Even if the answer is yes, we won’t know for a long time.
Here’s the odds on the recession start, with Q1 at 19%, same for Q2:
Combining with the probability of recession in 2025:
Between the two sets of betting odds, a recession start in Q4 has 11% probability.
Note we only have preliminary employment numbers for March, and non for other key indicators followed by the NBER BCDC. On the basis of those numbers, NBER BCDC would be unlikely to start date to March (although March could still be a “peak” month in the NBER chronology).
One thing we know about since the mid-March payroll survey is that new claims are looking quite tame, while continuing claims just rose to the highest level since November 2021. The rise in continuing claims has been gradual, a sign of the steady cooling in the labor market.
High continuing claims and low new claims means a slowdown in hiring and firing. That’s consistent with a late-cycle economy, and with what the JOLTS data show. So as of late March, just after March payroll data were collected, we’re seeing labor market data that isn’t showing evidence of a shock.
Labor data tend to lag, so other than the direct effects of government layoffs, we shouldn’t be surprised that labor data haven’t changed much; the shock is still to come. ISM data, orders data, financial market data, consumer discretionary spending – these are the sorts of things to watch for early signs of a shock.
As to that shock, here’s Powell’s comment today:
“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent. Avoiding that outcome would depend on keeping longer-term inflation expectations well anchored, on the size of the effects, and on how long it takes for them to pass through fully to prices.”
Tightening words? I’d think so, but market pricing has pulled Fed easing ever-so-slightly forward, perhaps because the S&P has lost another 5% today – no short-covering yet. (See yesterday’s comment from PoppingMyStitches.) The VIX is now at its highest level since early 2021, not conducive to dhort-covering.
Credit spreads, while not yet dire, are widening pretty quickly. The Fed is very sensitive to credit-market conditions. This is also the kind of situation in which financial plumbing problems can crop up. Bessent has shown himself to be willing to say stupid stuff, but we don’t know yet whether he’s actually stupid or how he’ll respond in a crisis. Luckily, the Fed is still in professional hands.
Sure would be nice to have Yellen around.
“The S&P’s 9% loss since last Friday makes this stocks’ worst week since March 2020 and the fifth-worst week of the last 20 years, trailing only losses sustained in October 2008 and early 2020.”
https://www.forbes.com/sites/dereksaul/2025/04/04/tariffs-cause-another-stock-market-rout-losses-approach-5-trillion-as-dow-plummets-another-2200-points/
The stock market is not the economy. The Fed is much more sensitive to credit-market developments than to stock-market performance. Over-valuation may have led to a sharper stock market response, relative to underlying fundamentals, than in earlier episodes. Those things said, the stock market does give a sort of one-stop market assessment of new developments, and the judgement is dire.
In those earlier episodes, financial markets began to crack, and emergency measures had to be taken. I’ll be keeping an eye on the weekend and Monday financial press for cracks.