What is a recession? Here's the criteria and where the U.S. stands

President Donald Trump declined to rule out a recession this year as a result of his tariffs and other economic policies. 

In an interview with Fox News Channel Sunday, Trump defended imposing – and then quickly pausing – 25% tariffs on imports from Mexico and Canada that sent markets tumbling over concerns of a trade war. The firing of thousands of federal employees and the deportation of millions of immigrant workers are also raising fears for an economic downturn. 

In the interview, Trump seemed to acknowledge that his plans could affect U.S. growth. Still, he claimed, it would ultimately be "great for us."

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What did Trump say about a recession? 

What they're saying:

Asked if he was expecting a recession in 2025, Trump responded: "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." He then added, "It takes a little time. It takes a little time."

Trump brushed aside concerns from businesses seeking stability as they make investment decisions. He said that "for years the globalists, the big globalists have been ripping off the United States" and that now, "all we’re doing is getting some of it back, and we’re going to treat our country fairly."

What is a recession? 

Dig deeper:

Cristian deRitis, deputy chief economist for Moody’s Analytics, says a recession is defined as a "broad-based decline in the economy marked by significant depth, duration and diffusion across industries," also known as the "three Ds." 

"A commonly used rule of thumb defines a recession as two consecutive quarters of negative annualized growth," deRitis explained. 

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The National Bureau of Economic Research defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."

"A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough," the NBER says. 

Where the U.S. stands:

The U.S. did not see any quarters of negative growth in 2024. The economy grew at a 2.3% annual rate from October through December. For the full year, the economy grew a healthy 2.8%, compared with 2.9% in 2023.

Who declares a recession? 

The NBER looks at a wide range of factors, including gross domestic product (GDP), employment, income, sales and industrial production. But reporting lags and revisions to the numbers typically mean that recessions aren't declared until "well after they have begun," deRitis explained. 

"Their objective is to define the historical record accurately rather than flag real-time recessions," he said. "While this is beneficial for research purposes, it may be less helpful for businesses and households that are making day-to-day decisions."

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That’s why economists have identified several leading indicators that predict a recession, though they are not considered foolproof. 

A sharp rise in weekly unemployment claims (more than 300,000), or a .5 percentage point increase in the unemployment rate from its 12-month low, are historic indicators that a recession has begun. 

Where the U.S. stands:

Unemployment rose from 4% in January to 4.1% in February, though the latest numbers don’t reflect Elon Musk’s purge of thousands of federal workers. The U.S. added 151,000 jobs in February. More than seven million Americans are unemployed.

The Conference Board’s Leading Economic Indicator Index – a tool used to predict future economic activity – has also provided early warning signs of a recession in the past. 

Where the U.S. stands:

In January, the LEI fell by 0.3%, "reversing most of the gains from the previous two months," according to the Conference Board. 

"Consumers' assessments of future business conditions turned more pessimistic in January, which—alongside fewer weekly hours worked in manufacturing—drove the monthly decline," Justyna Zabinska-La Monica, senior manager of business cycle indicators at The Conference Board, said in a statement. "However, manufacturing orders have almost stabilized after weighing heavily on the Index since 2022, and the yield spread contributed positively for the first time since November 2022. Overall, just four of the LEI's 10 components were negative in January. 

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"In addition, the LEI's six-month and annual growth rates continued to trend upward, signaling milder obstacles to US economic activity ahead. We currently forecast that real GDP for the US will expand by 2.3% in 2025, with stronger growth in the first half of the year."

The yield curve (the graph that plots interest rates and how much it costs to borrow money at certain times) and the high-yield corporate bond spread (the tracking of high-risk bonds with higher interest rates) have also been early warning indicators, though both the LEI and yield curve have provided false positives in the past, deRitis said. 

What are economists saying about a recession in 2025? 

What's next:

Economists are increasing the odds of a recession because of economic uncertainty fueled by tariffs and other policies, deRitis said. 

"If households and businesses are unsure of future prices and the labor market, they will cut back on spending and investment," deRitis said. "This could trigger a self-reinforcing cycle wherein lower spending leads to lower employment, leading to lower income and even lower spending and employment."

How can you prepare for a recession? 

What you can do:

Households can prepare for economic downturns "by adjusting their spending to live within their budgets, building emergency savings to cope with a sudden drop in income or an unexpected expense, and focusing on paying down debt," deRitis said.

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"Recessions are psychological (or sociological) events," he explained. "The sudden loss of faith by consumers and businesses and the associated decline in spending and employment can quickly move a growing economy into recession. 

"This psychological component makes forecasting recession difficult, with plenty of historical examples where financial conditions looked weak, but consumers held strong or where the economy looked to be performing well but was thrown off course by a sudden shock."

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If a recession does happen, deRitis cautioned that "fiscal support from the federal government may be limited … given the sharp rise in deficits and debt." 

"The financial support of stimulus checks and government grants and loans may not be available as it has been during previous downturns," he said. 

EconomyDonald J. Trump