The US economy is under strain, and the oil price shock could tip it over into recession.
“People are preparing themselves for the fact that we are already in a recession now or that there is a high likelihood we will soon be in one,” said Hady Farag, a partner and associate director at Boston Consulting Group.
The problem: Timing a recession is extraordinarily hard. How do we know? That quote was from a CNN story in July 2022.
That’s when oil was last over $100 and gas prices averaged about $5 a gallon. But the US economy didn’t go into a recession in 2022. Or in ’23. Or in ’24. Or in ’25.
There’s a reason to be concerned now. President Donald Trump’s economic agenda, including his tariffs and immigration policy, created a cloud of uncertainty. And now we’re contending with sky-high energy prices, which preceded eight of the past nine recessions.
“People are still very concerned about the trade war,” said Dan Suzuki, portfolio strategist at Richard Bernstein Advisors. “Financial markets are increasingly showing signs of fear of a recession.”
Whoops, that quote was from a 2018 CNN story. (Also, no recession then, BTW).
Economists have been predicting or warning about a recession every single year for the past eight years, and they were only right once – kinda.
2018
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S&P Global raised its risk of recession, arguing economic growth was in its late stages.
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The yield curve inverted, a classic (if flawed) recession predictor. It’s basically what happens when investors opt for long-term Treasurys because, in theory, a downturn is nigh.
2019
2020
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OK, partial credit here: The US economy actually did enter a very brief, very deep, but very manufactured recession in February and March because of the pandemic, when the world agreed to purposefully shut off the economy for a short period.
2021
2022
2023
2024
2025
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Trump’s historic tariffs sent markets into serious turmoil, and Wall Street banks raised their recession risks to about 50-50 in April.
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Inflation rose a bit and the job market seized up in the spring. Consumer spending slowed down toward the end of the year, raising some recessions fears.
2026
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Economists remain concerned that the already fragile economy is vulnerable to a shock – such as oil prices, which have spiked with no end in sight.
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Growing uncertainty for businesses and consumers about the path of the economy threatens to further damage an already weakening job market and raise inflation fears.
Economists have a few theories about why the US economy seems to be perpetually on the verge of recession without falling into one.
1) The “rolling recession” theory: Several individual sectors have gone into recession while other sectors have boomed at the same time.
In 2022, the tech sector was in recession while manufacturing boomed. In 2024, manufacturing was in a recession while the semiconductor business expanded rapidly. Last year, energy, luxury and the public sector shrank while AI was in a megaboom. This year, energy is having a resurgence, potentially insulating the economy from weakness in the financial and retail sectors – and some concerns about AI investment.
“People ask when the recession is coming. Dude, if you’re in high tech, it happened 3 years ago,” said John M. Veitch, dean of the business school at Notre Dame de Namur University in California, referring to the 2022 tech bear market.
An extreme example of rolling recessions was Australia, which went 28 years without a full-on recession because a commodities boom that began in 1992 insulated the rest of the economy.
2) The K-shaped theory: Wealthier Americans continue to spend despite higher prices, because they’re insulated from some of the economy’s challenges.
Folks at the top of the K typically own homes and have money in the market, while many folks at the bottom part of the K are struggling. Robust spending from wealthier Americans balances out the financial difficulties of lower-income households, preventing the broader economy from entering a recession.
3) The front-loading theory: Trump has often threatened tariffs as negotiating tools and doesn’t usually implement them right away. That has given businesses and consumers a window to front load and hoard, boosting spending.
When he doesn’t follow through, which he often doesn’t, people continue to spend, noted Heather Long, chief economist at Navy Federal Credit Union.
So is this the year?
Greg Daco, chief economist at EY-Parthenon, just bumped up his odds of a recession to 40%, a figure that he says could climb rapidly if the Middle East conflict increases in severity or duration. As each week passes, the higher costs (and higher risks) spread further throughout the economy.
“There’s real risk of recession,” said Long. “But you don’t want to be the economist who called wolf.”
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