Economist Predicts US Recession by Summer Due to Tariffs

According to Torsten Slok, chief economist at Apollo, the United States may face a recession by this summer, triggered by tariffs implemented under President Donald Trump's administration.

Slok issued a weekend note detailing a possible timeline for economic slowdown, largely attributed to high tariffs on Chinese imports. These measures could cause a significant decline in trade activity, reducing demand and leading to job cuts in the trucking and retail sectors.

Here is how Slok envisions the economic downturn progressing over the coming months.

Early to Mid-May

Following the tumultuous announcement of tariffs on April 2, dubbed 'Liberation Day,' and a 90-day postponement of many reciprocal duties, uncertainty has increased dramatically.

As April ends, Slok warned that the usual 20- to 40-day shipping timeline for goods from China implies that shipping volume to American ports might 'halt completely' by mid-May.

Mid to Late-May

Goods usually require up to 10 days to be transported from ports via trains and trucks to various urban centers across the country.

This indicates that as the influx of containers decreases, demand for trucking services might falter starting from mid-May, Slok anticipates.

Late-May to Early-June

By late May, the impact of the tariffs could result in 'bare shelves,' compelling businesses to react to diminished sales by downsizing their workforce, especially within trucking and retail sectors.

This timeframe suggests the US could enter a recessionary period by summer, as per Slok's analysis.

To support his forecast, Slok presented data showing that both corporate and consumer reactions are already shifting negatively in anticipation of the tariffs.

The forecast for corporate profits has experienced the steepest drop since the onset of the COVID-19 pandemic in 2020. Federal Reserve-tracked indexes reveal that new orders are 'plummeting,' with recent surveys indicating a marked 'retraction' in planned corporate capital expenditures, as Slok mentioned.

Corporate Leaders Voice Recessionary Worries

Besides data analyses, American business leaders are expressing concerns about recessionary trends. Slok highlighted a few notable observations made by executives:

Robert Jordan, the CEO of Southwest Airlines, remarked, "In this business, a recession is a recession regardless of terminology," with reference to anticipated revenue losses in the second quarter.

Scott Boatwright, CEO of Chipotle, commented during the first-quarter earnings call, "Economic concerns are the primary drivers forcing customers to dine out less frequently."

Jamie Caulfield, CFO of PepsiCo, noted in the company’s first-quarter earnings call, "Compared to three months ago, our confidence in the consumer's economy has decreased."

Increasing Odds of Recession in Betting Markets

Betting platform Kalshi data suggests the probability of a recession impacting the US economy by 2025 remains high, with a 57% chance as of Monday morning.

These odds were just 43% before Trump's tariff announcement on April 2 and 19% the day prior to Trump’s second presidential inauguration.