Earth to Economists: We’re Already in a Recession
The economy is going downhill quickly. How do we know? And what are we supposed to do as business owners?
It’s March 2025. Prices are up. The stock market is crashing. Consumers are struggling. Businesses are worried. No one is sure what’s going on and what tomorrow will bring.
And now, for the bad news!
Okay, okay, I kid. Surely, you have to allow me at least one moment of levity in an otherwise dour moment for the U.S. economy. Dark humor is the best coping method I know.
Normally, I like to take a quarterly view of how the economy is doing based on the results of major retailers like Walmart and Target. But the problem is, even after their latest earnings reports, I was still trying to wrap my hands around what is going on. Recently, it’s been a bit difficult to gather one’s thoughts without something else changing. I wanted to see more data before I confirmed my suspicions.
First, the official data: Consumer confidence dropped in February to 64.7 and then to 57.9 in March. Not only is that a drop of nearly 20 percent from January, but it’s the lowest level since 2022. Sentiment fell across all age groups, income levels, and wealth levels. Year-end inflation expectations jumped to 4.9% from 3.3% in January – likely due to the added 20% tariffs on all Chinese goods, as well as the double-digit tariff on other select products from Canada, Mexico, and soon the E.U.
The Atlanta Fed’s GDPNow tracker also reported an expected first quarter GDP contraction of 1.5%, which would be the first contraction since the pandemic. The Commerce Department said that personal spending fell by 0.5% in January (adjusted for inflation). Home sales are sluggish. Unemployment is ticking upwards. Labor participation is ticking downward. And Fannie Mae says economic policy uncertainty is at the highest level it’s been outside of a recession since the September 11 attacks.
That last one is what got me. I read it a second time. In the last few decades, every time economic policy uncertainty was at this level, save for a (hopefully) once-in-a-lifetime terrorist attack, it was in the midst of a recession.
To me, that means only one thing: we’re already in a recession.
Okay, before any economists rip my head off, I know that the definition of a recession is two consecutive quarters of negative GDP growth. And we haven’t even had one yet. So, what I mean is that I believe we’re already at the start of what will eventually be found to be a recession. That just rolled right off the tongue, didn’t it?
You have to remember that economic data is very delayed, because it looks at past behavior. We won’t actually know if we’re in a recession until the Q2 results are reported at the earliest — we’re talking at least four months. Consumers and businesses feel the pain of a recession long before economists or governments recognize the pain with their data.
Then who’s feeling what pain? Glad you asked.
Taking a look at some of the results and outlooks being reported by the country’s largest companies, the anecdotal data is…well, dismal, to say the least. Walmart did report a strong Q4, but lowered their outlook for 2025, and expect their profit growth to decline this year. They still see consumers spending more money on food than on “general merchandise,” which means they don’t have the money for discretionary spending. CEO Doug McMillon even said that Walmart is seeing low-income consumers now buying smaller sized items at the end of each month because they’re simply running out of money.
Dollar General similarly said that their customers have only enough money for basic essentials, and some are even sacrificing some of that spending. Dollar stores as a whole say their customers are waiting until the last second to buy the product they need. McDonald’s said 2025 had a sluggish start, and that their customers are eating at home more often to try and save every penny. Costco said that even their higher-income customers are beginning to shift their spending to lower-priced food, like swapping steaks for ground meat and poultry.
The anecdotal data goes on and on. In fact, the list of companies that either cut their guidance or issued a weak outlook for the coming quarters are endless. They include Delta Airlines, American Airlines, JetBlue, Kohl’s, Target, Macy’s, Abercrombie, Best Buy, Foot Locker, Lowe’s, and Hershey, just to name a few. Think of how many different categories these companies reside in: food, travel, apparel, electronics, home. That’s nearly the entire consumer-based economy.
And if you take a look at what financial institutions are reporting, it’s just as troubling. In the fourth quarter of 2024, average credit card debt surpassed $10,000 for the first time since 2009. Credit card and lender companies’ stocks are down 12% for the year as of March 11. And in the last two years, the rate of households earning over $150,000 per year that were 60-89 days behind on their debt more than doubled.
Remember a few months back when I wrote that Walmart claimed higher-income customers had transitioned from Target-type stores to Walmart in order to save money? Well, Dollar General is reporting the same thing now. They say higher-income consumers have begun spending more at Dollar General. To move from Target to Walmart is one thing. To move from Target to a dollar store is an enormous jump.1
Even basic survey and analyst data is pretty troubling: Citi reported credit card data suggests spending on apparel and athletic footwear has dropped 12 and 22%, respectively, in the last quarter. All other non-discretionary items are seeing single-digit declines as well. Convenience store sales reportedly dropped 4.3% in the 12 months ending February 23. That number includes a 7% drop in refrigerated products and a 6% drop in chocolate candy.
And a consulting group that spoke to the Wall Street Journal reported that while inflation has hovered around 3% economically, the number for low-income households has actually been over 6%.2 And a February survey by the Federal Reserve showed that consumers on average said there was a 14.6% chance they would not be able to make one of their minimum required debt payments in the next three months. That figure is the highest level since April 2020, at the height of the pandemic when panic was abound.
All of this data suggests the obvious: we’re already in a recession that the official economic data simply hasn’t reported just yet, because the first and second quarters are not yet done.
Obviously, the last few weeks have been incredibly bumpy from a news standpoint. Without getting into politics, the wariness certainly stems from the volatility that has resulted from an executive branch that has waffled on economic policy decisions by the hour. This has created a sort of paralysis from most people, which of course has a snowball effect on most companies and the economy as a whole. President Trump even declined to rule out a recession, and has begun talking about the probability and need to have short-term pain in our economy. Removing momentarily the fact that he likes uncertainty because it forces everyone to focus on what he says or does next, his actions become a double-edged sword. Those that hate the current administration’s policies have become fearful, and tightened their purse strings. Those that love the current administration’s policies listen to the head of the government and understand they need to save some money for the coming pain. What results is that no one spends much at all.3
Let’s say this is true, that we’re already ankles deep in a recession. What do you do as a business owner?
My strategy is and always has been to hang tight. Now, that isn’t normally a good business model, so let me explain: when the stock market crashed in 2008, the individual investors who lost the most were the ones who panicked, sold stocks, and missed out on the recovery. The ones that came out the best financially were the ones who did absolutely nothing. It only took a few years for the market to come back from essentially a 50% drop. And when the market crashed in 2020, the market came back in just a few months. Those who acted impulsively out of fear lost their shirts.
Panicked decision-making, especially in your business, is disastrous at worst, and irrationally risky at best. Unless something has fundamentally changed about your market or industry, this is the time to double down on your strengths and ensure you have a proper safety net to outlast the pain. Don’t flip your business model upside down in the hopes it generates business that doesn’t exist. Don’t overhaul your policies in the hopes it shocks your customer base into suddenly spending.
Economic downturns, and recessions in particular, stink. There’s no way around it. But you can’t force people to spend money when they don’t want to spend money. You can’t convince consumers that everything is fine when it isn’t.4 Instead, take the time to do a proper audit of your company, from top to bottom, to ensure that when the economy does begin to recover, you’re already prepared to climb your way back to the top. Look at the inventory or services you offer and make sure you’re still focused on the right market. Examine your operations to see if you are performing as efficiently and effectively as possible. Start those projects that you often complain about not having enough time to do. Instead of panicking about business being slow, use it to your advantage to better yourself, your staff, and your entire company.
Once the soft times are the rearview mirror, those that made panicked and rash decisions will be remembered for being impulsive and damaging to those around them. Those who stood tall, stuck with their business plan, and trudged through the tough times with their head held high, are more likely to earn the long-term respect and the long-term business of those that were already in their corner.
A large chunk of Dollar General’s customer base is on food stamps, to give you an idea of the clientele that tends to get their goods there.
The overall inflation number includes all goods. The consulting group’s number removes categories that low-income households generally don’t buy, such as furniture, jewelry, cars, etc. It’s a more accurate gauge of how prices affect an average middle- or lower-income consumer.
And that’s called bipartisanship!
That’s how the Democrats lost control of the government in 2024, and is likely how the Republicans will eventually lose control of the government in 2026.