[source image]
Dow Jones NewsApr 3, 4:17 PM UTC
MW Buckle up: U.S. economy runs higher risk of recession due to tariff turbulence
By Jeffry Bartash
GDP could turn negative in first half of 2025
The U.S. was already flirting with the first decline in economic growth in three years before President Donald Trump unveiled his latest round of tariffs on Wednesday. Now economists say two quarters of negative growth or even a recession can't be ruled out.
The White House on Wednesday imposed steep tariffs on almost every country in the world, far exceeding what Wall Street was expecting. Many economists predict that the duties, if kept in place for a while, will slow growth, depress hiring and boost inflation by raising prices.
The U.S. economy was already verging on a negative growth reading for the first quarter.
S&P Global, one of the premier Wall Street forecasters, was estimating a meager 0.3% increase in gross domestic product. And the Atlanta Federal Reserve's closely followed GDPNow tool was predicting a 1.4% decline.
Most of the Trump tariffs, including those announced previously, don't kick in until April, so any damage to the economy would likely show up in second-quarter GDP covering April to June.
Some economists are already sounding an alarm. High Frequency Economics penciled in a big decline in GDP in the second quarter.
"We were already estimating a contraction in GDP in the first quarter," wrote chief economist Carl Weinberg of High Frequency Economics. "Two quarters in a row would be a recession by many definitions."
At the very least, other analysts say, the U.S. economy is about to experience heavy turbulence.
Prices on countless goods are expected to rise, for one thing, fueling higher inflation.
The yearly increase in the consumer-price index could rise to close to 3.5% to 4%, from the current rate of 2.8%, Nationwide Chief Economist Kathy Bostjancic estimated.
Also read: Trump tariffs to hit working class hardest, costing average family $3,800 a year
Businesses face the prospect of slower sales or lower profits depending on how much they decide to raise prices to compensate for their higher costs. The likely outcome would also be less hiring, if not outright layoffs.
Carmaker Stellantis (STLA), for instance, on Thursday announced temporary layoffs tied to the tariffs involving almost 1,000 workers.
And a survey of employment conducted by the Institute for Supply Management sank in March to a nearly one-year low as service-oriented businesses awaited Trump's tariff strategy.
Steve Miller, chair of the ISM survey, said companies were worried about the pending tariffs and were putting hiring plans on hold until they knew what their future costs would be. Labor is the biggest expense for most companies, so freezing hiring is the quickest way to control costs.
The threat of a souring economy slammed stocks on Thursday and left equities DJIA SPX down more than 10% since February.
In the best-case scenario, the Trump administration relaxes the tariffs relatively quickly by striking deals with countries if they lower their trade barriers.
Yet the U.S. economy could still suffer if households and companies hunker down.
"Even if tariffs are removed quickly, the lingering effects of uncertainty could still tip the economy into recession by slowing business investment and consumer confidence," economists at Wilmington Trust said.
Also read: Why economists doubt Trump's tariffs will spur a boom in manufacturing jobs
The economy was already undergoing rapid shifts even before the new round of tariffs as companies sought to offset the risks.
Many businesses stockpiled imports ahead of the tariffs to lock in lower prices. As a result, the U.S. trade deficit surged to a record high - exactly the opposite of what the president says he is seeking.
Higher trade deficits subtract from GDP. The big runup in imports in the first quarter would be the chief reason the economy might show a contraction.
Related: Trump's tariffs could cause many countries to enter into a recession, says economist
-Jeffry Bartash
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
04-03-25 1217ET
Copyright © 2025 Dow Jones & Company, Inc.
