Economic Weakness

Extracted Attributes

• Consequences

  Poverty, increased unemployment

• Common Causes

  Financial crisis, external trade shock, adverse supply shock, economic bubble bursting, large-scale anthropogenic or natural disaster (e.g., pandemic), interest rate hikes, persistent inflationary pressures, tariffs

• Key Indicators

  Real GDP, real income, employment, industrial production, wholesale-retail sales, nonfarm payrolls, unemployment claims, average weekly hours in manufacturing, consumer expectations, manufacturing new orders

• General Definition

  Broad decline in economic activity, widespread drop in spending

• Government Responses

  Expansionary macroeconomic policies (increasing money supply, decreasing interest rates, increasing government spending, decreasing taxation)

• EU Definition of Recession

  Similar to US definition

• US Definition of Recession

  Significant decline in economic activity spread across the market, lasting more than a few months, visible in real GDP, real income, employment, industrial production, and wholesale-retail sales (National Bureau of Economic Research)

• Financial Sector Vulnerabilities

  Specific vulnerabilities exist that could amplify economic stress

• Federal Reserve Policy Constraints

  Persistent inflationary pressures limit policy options, unusual constraints compared to previous downturns

• UK and Canada Definition of Recession

  Negative economic growth for two consecutive quarters

Timeline

• The US economy entered a recession related to the start of the COVID-19 pandemic, lasting through April 2020. It was one of the shortest but most severe on record, with annualized declines of 5.5% in Q1 and 28.1% in Q2, followed by a quick rebound of 35.2% in Q3. (Source: Web Search)

  2020-02-01

• Labor market weakness in the closing months of 2024 led the Federal Reserve to cut interest rates by 1.0%. (Source: Web Search)

  2024-10-01

• The Conference Board forecasts a substantial slowdown in US economic activity for 2025, with GDP growth expected at only 1.6% (down from 2.8% in 2024). Tariffs are identified as a major drag on GDP growth in the first half of 2025 and 2026. Widespread weakness among leading indicators triggered a recession signal in August (implied 2024 or 2025). (Source: Web Search)

  2025-01-01

Recession

In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster (e.g. a pandemic). There is no official definition of a recession, according to the International Monetary Fund. In the United States, a recession is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." The European Union has adopted a similar definition. In the United Kingdom and Canada, a recession is defined as negative economic growth for two consecutive quarters. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply and decreasing interest rates or increasing government spending and decreasing taxation.

Web Search Results

• U.S. Economy Under Stress: Warning Signs Beneath the Surface

  These persistent inflationary pressures limit policy options for responding to economic weakness. Many investors are turning to inflation hedge assets to protect their portfolios. ### Federal Reserve Policy Constraints The Federal Reserve faces unusual constraints in its ability to respond to economic stress. Unlike previous downturns where interest rate cuts provided stimulus, today's environment presents complications: [...] The question hinges on inflation measurement accuracy. If inflation is underestimated by several percentage points as some analysts suggest, and GDP growth is reported around 3.5%, the economy could already be experiencing negative real growth. The divergence between official statistics and everyday consumer experiences with prices may indicate underlying weakness not yet reflected in headline numbers. According to a recent BBC analysis on economic indicators, there are significant [...] The commodities space presents a complex picture where physical supply constraints can drive prices upward even during periods of economic weakness. The transition to renewable energy and electrification creates particular demand for specific metals like copper, nickel, and lithium that face significant production challenges. ### Financial Sector Vulnerabilities The financial sector contains specific vulnerabilities that could amplify economic stress:

• The next big financial crisis may be brewing. Warning signs are ...

  All of which makes the power struggle between Trump and Powell pivotal. Despite what the president might say, the performance of the US economy is mediocre at best, although the weaknesses have been disguised by the fact that the better-off have been doing just fine. The top 10% of earners account for almost half of consumer spending – the highest level since the late 1980s.

• U.S. Economy Grows | U.S. Bank

  Labor market weakness led the Fed to cut rates by 1.0% in 2024’s closing months. Stable labor markets earlier in 2025 preceded recent downward revisions to payroll growth figures, which the Fed has since stated may justify cutting interest rates soon. “If the economy experiences both rising inflation and higher unemployment, the Fed doesn’t have tools to address those concurrent outcomes, but it also may justify somewhat lower, less restrictive policy rates.” [...] The most recent recession was an unusual one, related to the start of the COVID-19 pandemic. It lasted only from February through April 2020, one of the shortest recessions on record. But it also was one of the most severe. According to the U.S. Bureau of Economic Analysis, the U.S. economy declined at an annualized rate of 5.5% in 2020’s first quarter and declined again by 28.1% (annualized) in the second quarter. However, it quickly rebounded, growing by a 35.2% annualized rate in the third [...] A recession is a significant and prolonged downturn in economy activity. Some define a recession as two consecutive quarters of declining Gross Domestic Product (GDP) growth. However, more complex formulas are often used. The accepted arbiter of a recession, the National Bureau of Economic Research (NBER), considers a variety of measures to determine a recession’s timing and length. These may include nonfarm payrolls, industrial production and retail sales, along with key measures such as GDP.

• US Leading Indicators - The Conference Board

  “Besides persistently weak manufacturing new orders and consumer expectation indicators, labor market developments also weighed on the Index with an increase in unemployment claims and a decline in average weekly hours in manufacturing. Overall, the LEI suggests that economic activity will continue to slow. A major driver of this slowdown has been higher tariffs, which already trimmed growth in H1 2025 and will continue to be a drag on GDP growth in the second half of this year and in H1 2026. [...] The Conference Board, while not forecasting recession currently, expects GDP to grow by only 1.6% in 2025, a substantial slowdown from 2.8% in 2024.” [...] ### Widespread weakness among the LEI’s components and a negative growth rate over the past six months triggered the recession signal in August Image 22: alt=

• Market Failure: What It Is in Economics, Common Types, and Causes

  A market failure is an adverse outcome in which the forces of supply and demand fail to achieve balance, leading to an inefficient distribution of goods and services in the free market. The theory of supply and demand states that these two forces inevitably balance each other out in an ideally functioning free market. The level of products produced will match the level of demand for the products, with prices for the products rising or falling to maintain equilibrium. [...] Poverty is considered to be a result of market failure. When a recession hits, the poverty rate increases because employees lose their jobs or lose working hours, which results in no income or less income. Inequality, which is a component of market failure, can eventually lead to poverty when wealth is not distributed equally throughout society. This can be remedied with government intervention, such as by taxing the wealthy more or incorporating subsidies for those below the poverty level. [...] Public goods: Public goods are another example of market failure because they defy the tenets of supply and demand that drive the free markets. Public goods and services are nonexcludable—once something like a street light is produced, it is accessible to everyone, and the producer cannot limit consumption only to paying customers. Public goods are also nonrival, as use by one individual does not limit consumption by others. Given these characteristics, the private sector has little