Americans are feeling increasingly downbeat about the economic outlook. Some Wall Street economists believe the US will enter a recession this year. But most economic data isn’t flashing red just yet, leaving a pressing question as to when the ominous sentiment showing up in surveys will actually translate to a hit to growth.
The turning point could come this summer, several economists told Yahoo Finance.
“We will likely see continued softness in the survey data before the hard data start to weaken around mid-to-late summer, at which point higher prices, weaker spending, and slower hiring could start to emerge in the official statistics,” Goldman Sachs US economist Emanuel Abecasis wrote in a note to clients.
In a wide-ranging analysis of 45 different economic indicators, Goldman Sachs found that economic data typically takes about four months to show “clear signs of deterioration” when a particular event drives the slowdown. In the current environment, the event is President Trump boosting the US’s effective tariff rate to its highest level in a century, which many believe will drive up inflation and slow down growth.
The Goldman Sachs economics team said there is a 45% probability that the US economy will enter a recession in the next 12 months, well above the typical 15% chance seen in any given year.
“It is still too early to draw strong conclusions from the limited data we have so far, and we will continue to watch for indications of slower growth in the coming months,” Abecasis wrote.
Read more: What is a recession, and how does it impact you?
At the current pace, the data is following the path of other event-driven recessions like the 1973 oil spike and the 1980 recession spawned from increasing interest rates. Typically, the survey data declines first, which has happened with the University of Michigan’s consumer sentiment index hovering near its lowest level since 1978.
The so-called hard data, which measures actual economic activity, typically picks up following the event. This occurred in March with retail sales seeing the largest monthly increase in nearly two years. Meanwhile, durable goods orders rose 9.2% in March from the previous month, blowing away forecasts for a 2% rise as one of the biggest increases in aircraft orders on record pushed the number above consensus.
Economists argue that these data points indicate consumers and businesses are front-running Trump’s tariffs and snatching up items before price increases hit.
“The thing with any pull forward of demand is that the drop thereafter can be extremely painful, because if you’ve ordered as a business, you know, half of your inventory in order to stock up, then you’re not going to be reordering the following month,” EY chief economist Gregory Daco told Yahoo Finance. “So you’ve pulled forward demand, but that leads to a significant drop off in the next time period.”