The short answer is probably no, though the economic outlook remains uncertain. While manufacturing expanded modestly in February, underlying indicators are concerning. The S&P Global US Manufacturing PMI rose to 52.7, exceeding preliminary estimates and improving from January’s 51.2. However, the ISM Manufacturing PMI declined slightly to 50.3 from January’s 50.9. Though the sector has shown consecutive growth months for the first time in over two years, underlying metrics such as new orders—which dropped significantly from 55.1 to 48.6—point to weakening momentum. Manufacturers continue to worry about tariffs, trade disputes, and broader economic uncertainties.
New orders for durable goods increased in January but were largely influenced by volatile transportation orders. Excluding transportation, durable goods orders were flat. This underscores continued uncertainty and caution among businesses.
U.S. GDP will likely contract in the first quarter. Retail sales fell 0.9% in January, and a very low savings rate suggests limited capacity for consumer spending. Housing activity remains weak, with housing starts down 9.8% and housing sales falling 10.5%. Additionally, rising initial claims for unemployment insurance indicate softening labor market conditions. Employment growth in February is anticipated to be significantly lower than January, potentially pushing the unemployment rate higher.
A big driver of weaker GDP growth in Q1 was driven by the advanced international trade report which reported a surge in imports in January, likely due to companies accelerating orders ahead of tariff hikes. Revisions to the Atlanta Fed’s GDPNow model point to a 2.8% GDP decline for Q1.
Other worrying signs include an inverted yield curve, with the 10-year Treasury yield falling below the 3-month yield at the end of February. Historically, such inversions have been reliable recession indicators, typically preceding downturns by 12 to 18 months. The New York Federal Reserve closely monitors this indicator and publishes monthly updates estimating the likelihood of a recession. At the end of January, when the 10-year yield was 0.31 percentage points above the 3-month yield, the recession probability stood at 23%. With the recent inversion, the probability of a recession will likely rise.
Even though the risk of a recession in the coming months is rising, the U.S. economy is not likely currently in recession. Nevertheless, expect continued volatility in economic data and headlines as policy dynamics continue to evolve.
