President Trump addresses the media following the signing of executive orders in the Oval Office on March 6, which included a directive to rescind 25% tariffs for all goods complying with the USMCA trade agreement.
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Alex Wong/Getty Images
What cannot be debated is the tumultuous nature of recent weeks. There has been ongoing turmoil related to changing trade tariffs with Canada and Mexico, significant layoffs in the federal workforce, and the imminent threat of a government shutdown.
Additionally, Monday saw a sharp decline in the stock market, with the Dow Jones Industrial Average witnessing a drop of approximately 2%, completely offsetting gains made since President Trump’s inauguration. The Nasdaq registered a 4% loss.
Econo в мists typically assess potential recession indicators by examining metrics such as growth, unemployment, and inflation. However, consumer confidence and business sentiment are equally vital in gauging the overall climate of uncertainty. Since the onset of Trump’s second term, rapid policy shifts have been cited by many economists as factors contributing to this uncertainty.
“When there’s unpredictability regarding future policies… it’s likely to deter significant decisions,” states Gerald Cohen, chief economist at the Kenan Institute of Private Enterprise at the University of North Carolina. “If we’re already in a less appealing environment, that unpredictability might just push us into a recession.”
Current Data Insights
The Economic Policy Uncertainty Index offers a glimpse into current sentiments. This index relies on news articles, tax information, and data from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters to create a metric evaluating the intersection between economics and political volatility.
As of now, the index is at its peak level since the pandemic.
One of the co-authors of this index is Scott Baker, an associate professor at the Kellogg School of Management at Northwestern University.
“There is a well-documented correlation between high political uncertainty and declining economic growth,” notes Baker. “What we observe presently, as evidenced by the uncertainty index, is a pronounced surge in political uncertainty.”
Similarly, the University of Michigan’s consumer sentiment index has suffered due to the impacts of tariffs and inflation, experiencing a nearly 16% decline compared to the previous year in February.
“What we’ve noticed lately is that over the past two months consumers have become increasingly negative about the economy,” states Joanne Hsu, director of the University of Michigan’s Surveys of Consumers.
In a recent survey regarding small business optimism, the National Federation of Independent Business revealed that its index fell by 2.1 points to 100.7 in February, a decrease of 4.4 points from its peak in December, but still above its 51-year average of 98. The NFIB reported its uncertainty index rising by 4 points to 104, marking the second highest figure recorded.
Emily Gee, an economist and senior vice president for Inclusive Growth at the Center for American Progress, asserts that the unpredictable nature of the Trump administration’s policy initiatives has generated a level of uncertainty that is “far beyond mere speculation.”
“This unpredictability is detrimental to the functioning of vital public agencies as well as impacting numerous private sector workers and enterprises,” comments Gee.
Trump Minimizes Concerns
A recession is generally defined by economists as featuring two consecutive quarters of economic contraction. In the fourth quarter of 2024, the U.S. real GDP increased at an annual rate of 2.3%. However, by the end of February, the GDPNow forecast from the Atlanta Federal Reserve Bank for the first quarter of 2025 had dropped to -2.4%.
Trump has downplayed worries that his seemingly ambiguous policy declarations might exacerbate uncertainty for consumers and businesses. During a Fox Business interview, when asked about the Atlanta Fed’s caution regarding a potential economic downturn, he sidestepped the topic, remarking, “I dislike making predictions about such matters.” In response to an inquiry about the predictability of tariffs for CEOs, he stated: “I believe so. However, tariffs could increase over time. Predictability may not be guaranteed.”
Recently, Kevin Hassett, the newly appointed director of the National Economic Council, defended the White House’s tariff policy in a press briefing.
“By reducing inflation at a broad level through a $2 trillion reduction in annual deficit spending, the effect on grocery prices will far outweigh that of any isolated tariff increase,” Hassett elaborated.
Nick Iacovella, executive vice president of the Coalition for a Prosperous America, which has endorsed Trump’s tariff strategy, asserts: “What businesses fundamentally desire is consistency and transparency in trade and industrial policy—one that outlines objectives for enhancing the country’s manufacturing capabilities.”
He continued, “Domestic producers are unequivocally aware that the president is devoted to enforcing extensive tariffs and completing his trade agenda.”
Ultimately, the verdict on the president’s policies will be determined by regular consumers choosing where to spend their money—be it cars, furniture, or electronics, according to Hsu.
“Consumer expenditure comprises 70% of GDP,” Hsu emphasizes. “Should consumers curtail their spending due to a substantial decline in consumer sentiment, it would significantly hinder efforts to sidestep a recession.”
Nevertheless, Baker suggests that consumers could just as swiftly restore their confidence.
“In spite of considerable uncertainty, there remains the potential for consumers to stay relatively resilient.”
