A recession is a deep economic downturn that typically leads to mass job loss, bankruptcies and foreclosures. Previous recession scares—such as the 2022 freakout that saw some flashing a 99% chance of a recession—were, with hindsight, way overdone. Now, with stocks falling and consumers and businesses growing increasingly sour on the economy, the risk of a contraction has increased. The problem is uncertainty about President Trump’s economic agenda, especially his tariff plans.
A downturn can have wide-ranging effects on the economy, from squeezing spending by consumers to cutting business investments and reducing production capacity. The Commerce Department reported this week that after-tax consumer spending fell in January, even adjusting for the normal pullback from holiday buying. That’s a troubling sign, given that consumer spending drives the economy. The uncertainty tax is also making some people nervous, as evidenced by Google searches for “recession.”
Recession fears are stoked in part by the administration’s recent dialing back of some of its more aggressive tariff policies. That reduces the chances of a global recession, but could hurt second-half growth, according to Goldman Sachs economist Jan Hatzius.
If you haven’t done so already, now is a good time to consider fortifying your portfolio with assets that tend to hold up during downturns. Examples include dividend-paying stocks, real estate investment trusts and utilities. You should also consider keeping cash on hand, as credit availability tends to dry up when a recession hits. If you need to make a debt payment, consider asking your lender for a hardship application, which may buy you some months to avoid defaulting.
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