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Economists' worries about a possible recession peaked in April, but have since faded.Key Takeaways
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The U.S. economy is likely to avoid a recession in the second half of the year, forecasters said in their mid-year outlooks.
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President Donald Trump has walked back some of his most extreme tariff proposals, reducing the risks to the economy.
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A downturn is still possible, especially if war in the Middle East escalates or tariffs bite harder than expected, economists said.
The chances of an economic downturn have diminished, but aren't entirely gone, several economists said in mid-year forecasts.
Anxiety among experts about a possible recession peaked in April, after President Donald Trump announced higher-than-expected "reciprocal" tariffs on numerous trading partners. At the time, forecasters were concerned that the rapidly escalating trade war would push up inflation and drag down the economy. Some economists even said a recession was more likely than not.
Since then, however, Trump has paused or rolled back some of his most extreme tariff announcements, easing fears of a sharp downturn. Still, many tariffs remain in place, including a 10% tariff on most countries, 50% tariffs on steel and aluminum and 25% duties on foreign cars. Several economists said those tariffs will likely slow the economy but not drag it into an outright recession.
However, the ongoing uncertainty surrounding the tariff policy is also a major drag on the economy. Because tariff rates aren't finalized, it's difficult for businesses and individuals to make financial plans for the future, delaying purchases and investments.
Uncertainty has fallen since April but poses a lingering risk, according to forecasters. The conflict in the Middle East also risks causing a downturn, especially if it escalates to the point where oil supplies are disrupted.
"The tariff and trade uncertainty will not result in the U.S. economy entering a recession, Sean Snaith, a professor of economics at the University of Central Florida, wrote. "It may, however, cause growth to be somewhat lower than it would have been in the absence of the disorder."
What Are The Odds?
Forecasters at Oxford Economics pegged the chances of a recession in the next year at 35%, still higher than the baseline 15% recession chance in any given year.
So far, the unemployment rate remains at a relatively low 4.2%, whereas a sharp jump would indicate a brewing recession. The data has shown a slowdown in the job market, with job openings trending lower in recent months, partly due to the firing of federal workers by the DOGE cost-cutting task force.
"The labor market is definitely slowing in 2025 as concerns about tariffs and federal spending cuts take hold," PNC economists led by Chief Economist Gus Faucher wrote. "The most likely outcome is weaker job growth and a slightly higher unemployment rate through the rest of this year, but not a recession. Still, the labor market could turn quickly south in the months ahead if employers lose confidence because of tariffs."
What Business Leaders Say About The Risks
Although the hard data like unemployment hasn't shown many red flags, "soft" data such as surveys of business leaders indicate they are pessimistic.
Goldman Sachs economists Ronnie Walker and David Mericle said the C-suite chatter shows leaders are downbeat about the economy, but not so much that a recession seems inevitable. Goldman does expect unemployment to tick up and the annual inflation rate to rise to more than 3% from its current mid-2% levels, but doesn't forecast a recession.
"Overall, company commentary appears roughly consistent with our forecast that tariffs will have a visible effect that will leave the U.S. economy with slower hiring and a slightly higher unemployment rate, little growth in investment spending this year, below-potential GDP growth but not a recession, and a meaningful but one-time inflation rebound to the mid-3s," Mericle and Walker wrote.
Robert Fry, an independent forecaster, is slightly more concerned.
"Even if a recession is avoided, consumer spending on durable goods and business investment in equipment, which were pulled forward in anticipation of tariffs, are likely to decline in coming months," he wrote. "And if the war between Israel and Iran pushes oil prices significantly higher, a recession could work its way back into the forecast."
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