Trade tensions have caused stocks to slide into correction territory, leading to speculation about whether a recession is on the horizon. Prediction markets like Polymarket have seen a significant increase in the odds of a recession in 2025, with experts also pointing to factors like trade tensions, policy uncertainty, and consumer confidence as potential risks. While no single measure can definitively predict a recession, economists and market watchers monitor a combination of metrics, including consumer spending, job openings, and business confidence to gauge the health of the economy.
Consumer behavior is a key indicator of economic downturn, with consumer spending representing a significant portion of the GDP. Retail sales, in particular, can provide early insights into economic trends. Policy uncertainty and consumer confidence play a role in shaping consumer behavior, with a decline in confidence potentially leading to an economic slowdown. Measures like the University of Michigan’s Index of Consumer Sentiment have shown a decline in consumer confidence, indicating potential challenges ahead.
Another metric that economists pay attention to is the yield curve, which compares short-term to long-term interest rates on government debt. A negative spread, or inversion, between these rates has historically preceded recessions, though there was a false alarm in 2022. The yield curve is currently in positive territory after a prolonged inversion that ended in late 2024. While these indicators provide valuable insights, economists caution that a recession declaration typically requires confirmation by a panel of experts at organizations like the National Bureau of Economic Research.
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