Trump tariffs and falling stocks are sparking recession fears. Here’s what it would mean for CT

CT Insider – Wednesday, March 12, 2025
By Paul Schott

During the first seven weeks of President Donald Trump’s second term, the impact of his new tariffs on foreign goods has dominated the public discussion of his economic policies.

Now, another word has surfaced in the debate — recession.

To be clear, the U.S. is not in a recession today. But talk of the possibility of another economic downturn has increased in recent weeks, amid volatility in the stock market and signs of slipping consumer confidence. The anxiety has been fueled by questions about whether the new tariffs will exacerbate the persistently high inflation that fueled Trump’s election victory last November, as well as worries about the toll of deep job cuts in the federal government, planned mass deportations of undocumented migrants and federal funding freezes.

With the U.S. economy at a critical juncture, here are some of the key questions facing Connecticut and the rest of the country.

What is a recession? How will we know if another has started in the U.S.?

A recession is generally understood to refer to a period when the economy slows down, but there is no universally accepted definition.

The National Bureau of Economic Research defines a recession as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” But it does not have a numerical formula to determine when a recession begins or ends.

Recessions are often defined as having at least two consecutive quarters of decreasing gross domestic product, adjusted for inflation. This type of cycle is also known as “negative growth.” The 12 U.S. recessions since 1947 have each featured negative growth, according to the Congressional Research Service.

But CRS officials also noted that there are exceptions to that rule. For instance, the recession that occurred at the beginning of the COVID-19 pandemic in 2020 was two months long, or half of a quarter of a year.

It’s debatable whether the U.S. will soon enter another recession, but some of the recent data is not promising. The Federal Reserve Bank of Atlanta estimated on March 6 that GDP would decrease 2.4% in the first quarter of 2025. In comparison, GDP grew 2.3% in the fourth quarter of 2024 and 2.8% in all of 2024.

In contrast, recent job numbers have been more encouraging. The U.S. added 151,000 positions last month, up from 125,000 in January.

When asked if he was expecting a recession this year, Trump told Fox News Channel this week: “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.”

How is the stock market doing?

Recent activity in the stock market has highlighted investor worries about a potential economic downturn.

The S&P 500, Dow Jones Industrial Average and Nasdaq Composite each dropped on Monday and Tuesday. The S&P 500’s decline this week has dragged the index down about 9% from its all-time high, set last month just after Trump’s inauguration to his second term.

“The market is always a reflection of what people anticipate will occur in the future,” said David Cadden, a professor emeritus of entrepreneurship and strategy at Quinnipiac University. “The fact that the market has dropped nearly 9% in less than a month shows that they’re very concerned that recent policy initiatives of the Trump administration may have a deleterious effect on the economy.”

How does consumer confidence look these days?

By some measures, consumer confidence has sunk recently. The Conference Board, a nonprofit global think tank, reported a seven-point drop last month in its consumer confidence index, its largest month-over-month decrease since August 2021. Survey respondents continue to bring up inflation as the reason, but they are increasingly referencing trade and tariffs, the board said.

“Since 70% of the total U.S. economy is consumer-based, the anticipation of the economy on the part of the average American is extremely important,” Cadden said. “They will determine whether they spend money or whether they try to develop increased savings to tide them over in economic bad times.”

How would another recession affect Connecticut?

Connecticut has taken a long time to rebound from recent recessions.

It took the state about three-and-a-half years to recover the approximately 289,000 jobs it lost as a result of pandemic-sparked shutdowns during the spring of 2020. Those job losses occurred throughout the economy, but they were particularly acute in the leisure and hospitality sector.

At the same time, the state still has not regained all the jobs it lost in the Great Recession, which was fueled by the 2008 financial crisis. Connecticut’s financial services sector was especially hard-hit in that downturn, and the sector still has fewer jobs in the state than it did in 2008.

Who would be most affected by another recession?

Low-income people generally suffer the most economically during recessions, according to many economists.

“Generally, when we enter recessions, persons with low earnings are hit hard, and poverty … rises, as does inequality,” Marianne Page, a professor of economics at the University of California, Davis, said in a Q&A posted in November 2022 on the university’s website. “A person who experiences a job loss in a recession is more likely to experience long-term unemployment.”

Connecticut is one of the wealthiest states. Its median household income of $93,760 exceeds the U.S. median of $78,538, according to the most recent U.S. Census Bureau data.

But many people in the state are still struggling to make ends meet. Nearly 564,000 households — or almost 40% of the state’s total — fell below the threshold at which they could afford essentials in 2022, according to a report last year by the United Way of Connecticut.

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