Hi, everyone, I'm Liz Ann Sonders, and this is April's Market Snapshot.
In this video, I'll assess rising recession risk, and share my thoughts on what to keep an eye on going forward. Now, trade policy obviously, and uncertainty around it is top of mind, but I should note that I am recording this in advance of President Trump's Liberation Day announcement on additional tariffs beyond what's already in place. So that's why I'm not discussing that component of it. But let's start big picture with a bit of a history lesson.
[Grid for "Recessions and bear markets" showing dates and number of months is displayed]
So this admittedly busy visual shows every recession via the orange bars and every equity bear market via the blue bars in the post-World War II era. The individual boxes represent monthly increments, and the date range to the left represents the entire cycle from either the beginning of the bear market or the beginning of the recession, whichever came first, to the final completing of the cycle.
Now, as shown, recessions and bear markets don't always overlap. Most of the time they don't. There were four recessions, in 1945, '53 to '54, 1960 to '61, and 1980 to '81 that did not have an overlapping bear market, although there was one in short order in 1981. There were also four bear markets that did not overlap with recessions, 1946 to '47, late '61 to 1962, 1966, and 1987.
We have also highlighted the lagged nature of the declaration of recession start dates via the red boxes and end dates via the green boxes. Now, since 1978, the official arbiter of recessions has been the National Bureau of Economic Research, or NBER, for short, and they provide start and end dates by month, always in retrospect.
Now, in contrast to conventional wisdom, the NBER's definition of a recession is not two consecutive quarters of negative GDP, or gross domestic product. The actual definition per the NBER is 'a significant decline in economic activity that is spread across the economy and that lasts more than a few months.' The view of NBER's Business Cycle Dating Committee is that 'while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.'
Now, to determine the months of peaks and troughs, the committee specifically monitors 'real personal income less transfers, nonfarm payroll employment, real personal consumption expenditures, wholesale/retail sales adjusted for price changes, employment as measured by the Bureau of Labor Statistics' household survey, and industrial production.' The NBER has 'no fixed rule about what measures contribute information to the process of how they're weighted.'
Now, the average lag between recession start month and when the NBER announced that particular start month, that lag has been seven months on average. Now, the average lag between recessions ending months and when the NBER announced that those had been the end of the recessions, that lag is a whopping 15 months. The moral of this particular part of the story is that by the time the NBER announces recession starts, they have either already been well underway or at times actually already over, while by the time they announce recessions' end dates, recoveries were already well underway.
[Red, yellow and green dominoes for "Recession's dominoes" are displayed]
So now let's take a look at the current economic cycle. A number of years ago, we created a domino-style chart showing how recessions tend to unfold. Now, each cycle is inherently different, so the dominoes aren't always the same and don't necessarily fall in the same order. To-date, we have seen several dominoes already fall, including stock prices, price-to-earnings ratios, we've seen a heightened stock market volatility, we've seen spiking economic uncertainty, and plunging consumer confidence. Now, although inflation hasn't reheated significantly, obviously concerns about that are certainly elevated. We have seen some shaky housing data, while there have also been some cracks forming in the labor market. And based on those, that's why we have the yellow coloring here. Now, the green dominoes, are those still standing, at least for now.
[High/low chart for "Trade's policy uncertainty's gone parabolic" for U.S. Trade Policy Uncertainty Index is displayed]
Now, there is no question we are living amid a crisis of uncertainty, specifically regarding government policy. There's an index called the Trade Policy Uncertainty Index shown here. Needless to say, this is an extraordinarily parabolic spike, and as a result of this uncertainty, we've seen a denting of so-called "animal spirits," what often drives the economy. We've also seen a denting in what's called "soft" economic data—that's survey-based readings, confidence-, sentiment-based readings. But this weakness and uncertainty is starting to hit some of the hard economic data as well.
[High/low chart for "Look out below, GDP" for Evolution of Atlanta Fed GDPNow real GDP estimate for 2025: Q1 is displayed]
One place this is seen is in the dramatic decline in estimates for first quarter gross domestic product, or GDP. This is the widely watched GDPNow model from the Atlanta Fed. Now, the primary reading shows real GDP tracking at down nearly 4% for the first quarter. However, there needs to be an adjustment for what have been a heightened level of imports of what's called non-monetary gold. Those have accelerated in large part in relation to this heightened uncertainty. So Atlanta Fed did the right thing and made an adjustment for that. But even with that adjustment, shown via the dotted line, real GDP is still tracking in negative territory.
[High/low chart for "CEOs' outlook has plunged" for CEO Confidence Index: confidence in economy 1-year from now is displayed]
Now, corporate confidence measures have plunged as well. Shown here is a measure of CEO confidence looking ahead one year, and as you can see, it's gone straight down, taking out what was the prior low in 2022, which of course was the year inflation hit its apex and stocks suffered a bear market. Now, the plunge has significantly outpaced anything, as you could see during the last trade war, which was launched in 2018.
[High/low chart for "Small businesses hit the bunkers" for NFIB % of small businesses: good time to expand is displayed]
And it's not just larger company CEOs, small businesses are feeling the uncertainty pressure as well. Over the past two months, the percentage of small businesses saying now is a good time to expand has fallen by eight percentage points, and that's among the largest declines in the National Federation of Independent Business Survey's history. That's the NFIB. Now, the drop has quickly reversed what you saw, a big post-election surge. It hasn't reversed all of it, but certainly part of it. And that's in contrast to optimism remaining high in the aftermath of the 2016 election, at least up until the pandemic.
[List of "Takeaways" is displayed]
Now, here are the summary takeaways from today's discussion. Let me say this first. I much prefer doing these videos on happy subjects, but it's important to address it. A little more than three months into this year, it is quite clear that markets, businesses, and consumers are not embracing the uncertain backdrop in which we find ourselves. Now, if the survey-based, or again, "soft data" remains soft long enough, we see more risk of the hard data catching down to that weaker soft data.
That's it for now. Thank you, as always, for taking the time to tune in, and we'll be back with another installment next month, hopefully on a happier subject. Be well, everybody.
[Disclosures and Definitions are displayed]
