How close are we to a recession, and how will we know when we get there?

The uncertainty surrounding tariffs continues to impact the stock market, leading some economists to speculate that the U.S. may be on the brink of a recession. The Trump administration has not ruled out this possibility, highlighting the need to closely monitor economic indicators to determine the state of the economy.

According to the National Bureau of Economic Research (NBER), a recession is typically characterized by two consecutive quarters of negative economic growth, specifically in the gross domestic product (GDP). This means that official confirmation of a recession only occurs after the fact, making it challenging to predict in real-time.

During a recession, key indicators such as rising unemployment and a decline in economic activity across various sectors become evident. Consumers tend to reduce spending, while businesses may halt hiring practices. Since 1929, the U.S. has experienced 14 recessionary periods, with the most recent occurring from February to April 2020 amidst the COVID-19 pandemic.

While recent data shows a slight increase in U.S. unemployment and moderate job growth, the economy has not yet displayed clear signs of entering a recession. Retail sales have also shown modest growth, indicating ongoing consumer confidence.

Economists caution against premature speculation of a recession, citing the current economic landscape as uncomfortable but not indicative of a full-blown recession. Policy uncertainty, federal layoffs, and wavering sentiment among businesses, consumers, and investors contribute to the unease surrounding the economy.

In addition to recessionary concerns, some economists warn of stagflation, a term used to describe a challenging economic scenario where growth stagnates while inflation remains high. Stagflation was last experienced in the 1970s and early ’80s due to increased oil production costs and surging inflation rates.

Despite these potential risks, current economic data suggests a relatively low likelihood of entering a recession. Job creation continues at a steady pace, and consumer spending remains robust. While warning signs of a weakening economy exist, such as declining consumer sentiment and spending, the presence of tariffs adds an additional layer of uncertainty.

In conclusion, while the U.S. economy faces challenges and risks, it is not yet on the brink of a recession. Monitoring key economic indicators and policy developments will be crucial in assessing the future trajectory of the economy.

Written by: Megan Cerullo, a New York-based reporter for CBS MoneyWatch covering small business, workplace, healthcare, consumer spending, and personal finance topics. She regularly appears on CBS News 24/7 to discuss her reporting.