Economists at Goldman Sachs have issued a more pessimistic forecast for the U.S. economy, saying the chances of a recession in the U.S. are now 35%. They attribute the rise to Trump administration tariffs, which they say will slow economic growth.
In a note to clients over the weekend, Goldman economists predicted the average tariff on all goods imported into the U.S. will be 15%, adding to the cost to merchants, with the expectation that most of the increase will be passed along to consumers.
As a result, the bank now predicts the end-of-year inflation rate will be 3.5%, up from 2.8% in February, and the unemployment rate will rise to 4.5% from 4.1%.
With higher prices caused by tariffs, economists expect consumers will buy fewer products. Profit margins will shrink, businesses will hire fewer new employees and layoffs may increase.
A recession is defined as two consecutive quarters of negative GDP growth. The fourth quarter of 2024 saw positive growth, so all eyes will be on the announcement of first quarter 2025 growth, sometime in late April or early May.
What happens in a recession?
In a recession, consumers prioritize spending on essential goods and services like food, healthcare and the utility bill. They are less likely to spend on things like entertainment and travel.
Large expenditures would likely take the biggest hit. With an anticipated 25% tariff on imported cars and trucks, vehicle sales could slow significantly, impacting employment for autoworkers and car dealer employees.
Retirees’ 401(k) accounts could also take a significant hit. Goldman analysts said they expect the S&P 500 to suffer a 5% decline over the next three months, though they said it should rebound late in the year.
Since the turn of the century, the U.S. has suffered two recessions. The Great Recession lasted from 2007 to 2009, caused by the collapse of the U.S. housing market.
The economy most recently suffered a short but sharp recession that occurred at the start of the COVID-19 pandemic.
Sign up below for The Daily Consumer, our newsletter on the latest consumer news, including recalls, scams, lawsuits and more.