(NewsNation) — President Donald Trump’s tariffs on China, Mexico and Canada have caused some economic concern throughout the country about a potential recession.
But how likely is a recession? And what will happen during a recession if the United States economy crashes?
What is a recession?
Two consecutive quarters of negative real gross domestic product (GDP), which is the total value of goods and services in the country over a certain time period, is often considered a recession. However, this isn’t the official definition.
According to the National Bureau of Economic Research (NBER), a recession is a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The bureau also noted that “most recessions are brief.” However, the time it takes for the economy to return to the peak level of activity before a recession could last for an extended amount of time.
What happens during a recession?
According to John Hancock Investment Management, there are six things that can happen during a recession. That includes:
- Unemployment can rise: During a recession, unemployment will normally rise because businesses have to cut back on spending or close completely. However, this can vary.
- People could save more money: People who have jobs during a recession are more likely to spend less. However, this can have a negative effect, causing progressively lower incomes and higher unemployment rates.
- Decline in manufacturing and services: The Institute of Supply Management’s Purchasing Managers’ Index showed over 130 months in a row of growth in manufacturing from Spring 2009 to 2020.
- Falling prices: A recession can result in lower prices, especially in real estate and with discretionary items. Sometimes, recessions can happen to help fight inflation, like with the recessions that happened between 1980 and 1982.
- Interest rates falling: Banks are less motivated to lend money during a recession in fear that they won’t be repaid. Interest rates can also fall, which will shrink a bank’s profit.
- Deficits increase: Typically, the government will increase its spending to help offset any effects from the recession.
Is the United States heading for a recession?
Trump didn’t rule out the possibility of a recession in a recent interview with Fox News.
Trump told Fox News, “I hate to predict things like that. There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing.” This comes as the stock market is down.
Trump also said, “It takes a little time. It takes a little time. But I think it should be great for us.”
Treasury Secretary Scott Bessent also told CNBC that there’s going to be a “detox period” for the economy as it moves from public to private spending. While the Trump administration is asking for patience, some investors are feeling uneasy, and some banks have raised their recession odds.
However, independent Sen. Angus King from Maine said, “The steps thus far do not appear to me to be doing anything to help ordinary Americans in their daily economic lives.”
How likely is a recession in the US?
Goldman Sachs has hiked its odds of a recession in the next year from 15% to 20%, according to The Wall Street Journal. The bank said this could increase if the Trump administration remains “committed to its policies even in the face of much worse data.”
J.P. Morgan Chase economists believe the chances of a recession are at 40%, “owing to extreme US policies,” Bloomberg reported. Then, a different projection from the New York Federal Reserve forecasts a 2.7% growth in the first quarter.
This shows that predicting a recession is difficult, and experts generally disagree about how likely a recession might be.