Are We Headed For A Recession?
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The number one move is not to panic. The long story doesn't change. You live in the richest and most successful economy in the history of the world that produces jobs and income and wealth at a breakneck pace. And that won't change. Recessions happen every five to 10 years. And while they can be devastating, they don't portend a different economic future than the one we had before. So don't panic.

Hey, everyone. Thanks so much for joining us today on a special episode of Her Money. I'm Jean Chatzky, and we decided we were going to drop a special episode this week so we could talk about all things recession because, well, that seems to just be the word of the week. The chatter seems to have started when President Trump acknowledged that, quote, this is a period of transition, end quote, and he wouldn't rule out that a recession is coming.

Then Monday marked the worst day for the S&P 500 since the beginning of 2025. It was the worst for the Nasdaq since 2022. And as of Wednesday morning, which is when we're recording this, Trump has imposed 25% tariffs on all steel and aluminum imported into the U.S. That is likely to make some

many of the things that we buy more expensive. And look, I understand that many of you are nervous. I get it. It is really, really tough to see your portfolio hit record highs and then just drop out of the sky in a few short weeks. But it's not all terrible. Inflation actually eased a little more than expected in February. Almost half of

of all the days in the stock market are, in fact, down days, which is something that many people don't realize. And the stock market does tend to have weaker performance at the beginning of new presidential terms. Plus, if we're headed for a recession, guess what? Recessions are normal. In fact, it kind of even feels like we might be

overdue. So today we are going to unpack all of this with our friend Catherine Edwards. She's an economist. You loved it when we had her on the show a few months ago talking about the 2025 economy. We asked her if she could come back in a pinch and she said yes. So thank you, Catherine, for being here. Of course, I'm happy to be here.

So it's been a doozy of a few days to say the least. Before I even get to the are we headed for a recession question, what's a recession? Great question. A recession is a downturn in economic activity.

that exhibits certain features, it hits certain beats. But typically, you see a pullback of economic activity, people spend less money, there's layoffs in the economy, and the labor market slowly recovers.

And has that definition been the same or has it changed over time? Well, you might have learned in maybe your like high school or undergraduate textbook that it's two quarters of negative economic growth. That definition hasn't really been functional for a long time.

The way that we figure out whether or not we're in a recession is that there's a group of economists at the National Bureau of Economic Research that monitors all the data of economic activity, every indicator that you've ever heard reported on and thousands more. And they come to a consensus that the economy has, in fact, slowed.

They're normally very late. So they won't decide that the economy has gone into recession until months afterward. And they'll say in, say, December, a recession started in June.

And then they'll do the same thing with the recession's end. The decline has reached its nadir and now the economy is growing and that started five months ago. So it's a very measured, it's not let's shoot from the hip. There was a bad jobs report and now we're in a recession. It's very much the opposite of that. We try to gather as much evidence as possible to decide if there is in fact a decline in the economy. Because the point here is that we don't want every bad blip to become a recession.

And so we could be in one right now and just not know it for a while. Right. The way that I explain it is that it's kind of like, when do you know that you've had a bad week?

So yeah, Monday didn't go well. But it's still Monday. Maybe Monday didn't go well, but Tuesday you could turn it around. Or Tuesday was just fine, but Wednesday was an okay day. I mean, it's not as if Monday morning, you're walking into the office, a bird poops on your shoulder, and you're like, that's it. This is a terrible week. There's a lot of week left before you say this is a bad week. But maybe...

You know, your car gets hit and sideswiped while you're parked. Someone breaks into your house like, oh, look, things happen. And by Thursday, you're like, I'm pretty sure this is a bad week. And by Friday, you know for sure. Recessions are the same way. I mean, there are bad things that happen in our economy. Like you said, the market has down days and up days. Jobs mainly are added, but some months are weak because of various things.

We wait until the end of the week before we say either way, all right, this was a bad one. Recessions are pretty similar. So I will say with certainty, we are having a bad day. But that doesn't mean we've had a bad week yet. And that daylight between the bad day and the bad week can be really confusing, but it exists because

So that if we do have a bad day, we can do all we can to prevent from having a bad week. I mean, we do not want a recession to happen. It's a lot of hurt and pain for American families and workers. And so this type of measured approach gives policy the chance to fight a recession before it comes.

I think what's so confusing is we get these economic indicators and boy, so I've been covering personal finance for a long time, 30 years. And I don't remember until recently, past decade maybe, people

being so laser focused on every issuance of data, ordinary people being, oh, the inflation numbers coming out, the jobs numbers coming out. It used to be something that only those people who worked in the industry paid attention to. And now it seems like

Mom and dad and Aunt Susan are paying attention to those things, too. I wonder if this micro focus is a good thing or a bad thing. You know, it can affect mood, but not the underlying data itself, necessarily. I think what it evinces to me is just how much we've all been through it.

I mean, the Great Recession, which is what we call the downturn that was associated with a financial crisis in the housing bubble, that recession earned its title. I mean, there's a reason why we call it great, because it was the worst downturn since the Great Depression. It was so long and painful. It affected so many aspects of people's financial lives. And then...

you know, as we come out of it, we experience a really strong economy that is cut short by a pandemic recession, which was also the worst recession since the Great Depression. So our economic lives have been

This century has been a weak economic century, in part because the recessions we've experienced have been so devastating. So that doesn't mean that good things didn't happen, that the economy didn't grow or we didn't see high wages. But I think on some level, we've had to deal more with bad economies than past generations or eras. Until very, very recently, until the tariff talk really started to heat up.

It seemed like everything was actually good. It seemed like the Federal Reserve had engineered the soft landing that is often thought to be so elusive that they can slow the frenzied growth in the economy without sending us into a recession. Now, all of a sudden, yes, we got the good inflation number this morning, but it's

there is more talk of recession. So what is exactly moving these dials and levers? How did we get here when just a few months ago the S&P 500 was hitting record highs? Right. So I'm going to give two answers to this question. So first answer is some context.

Before 2022, there was very little historical evidence that you could reduce high inflation like the high inflation that we were experiencing without hitting a recession.

So everybody who ever studied an economic textbook and had looked at economic history said, well, we have high inflation, so we're going to make a prediction of a recession. And pretty much every forecaster and economist were saying, based on historical experience, a recession will come. What's interesting is that the data never supported it.

There was never a month where like, oh my gosh, it's flashing red. The economy contracted. Unemployment rate jumped. That never happened. All the forecast came from historical experience. Well, this is just what happens in economies. But it never came from the data that we were getting month to month.

And at some point, forecasters and economists, their experience and their kind of like history instinct versus the numbers they were getting in real time, they switched and they realized, all right, well, we're not going into recession. The economy looks really strong. And in fact, we've avoided it. So that takes us through the end of 2024 of we've actually avoided a recession and we've brought down inflation. This is a miracle. What's happening now is the data is flashing red.

And historically, we should not be in a recession. We just beat back inflation. The unemployment rate is 4%. All of our historical experience would say we are about to kick off an era of growth. It is the data that has people spooked. And that's in part because U.S. economic policy took a drastic change. So if the first answer to the question is, was it intuition guiding our projections versus was it data? That's switched.

Now it is data that is guiding. But the second answer is we know what happened. A president took charge and we have a new regime of leadership that is pursuing contractionary economic policy on multiple fronts.

So the idea that we would have a recession as a result is not surprising. So it's a combination of contractionary economic policy and a president that seems to be embracing it as opposed to fighting it. Can you explain why he might believe that a recession is necessary and how tariffs fit into that picture? What's the goal here? Recession is not the goal. I mean, President Trump...

during his first term loved bragging about the stock market, right? And how well it was doing. So sending the markets down is not, if I could read his mind, is not his goal. He's trying to accomplish something else and he's trying to accomplish it with tariffs. And I think that what he's trying to accomplish is tough to understand.

Sure. Well, I think on some level, his messaging is not a mystery to me. His advisors are probably telling him like this is we are getting consensus forecast for economic contraction. This might affect prices. And I think his posture on recessions is because he's been told one is coming. And so he's trying to get ahead of it. Well, of course, I knew I obviously we're going to have one. And I think he's trying not to be caught looking right. He wants to make it seem like obviously a recession would come. We all knew that.

as opposed to being caught off guard. And so his messaging makes sense. The policy doesn't. So the appeal of tariffs, everybody would love this, right? If we stop buying stuff from other countries and we make it here, we'd have more jobs and a more independent economy. So we should go after that. That's what we need to be doing. This is great economic policy.

The appeal does not play into reality, which is why it hasn't been an active part of U.S. economic policy for almost 80 years, because in actuality, tariffs lead to retaliation. Tariffs lead to higher prices. And

Probably the biggest problem with tariff policy and the goals of bringing industrial manufacturing back here is that we don't get to go backward in time. U.S. workers don't make the wages they did in 1955. We don't have the cost of materials that we had in 1955. You have the privilege of being in an economy that has one of the highest paid and highest skilled workforces in the entire world. The future is not to go back to 1955 and make T-shirts here again.

The countries that make T-shirts are countries like Bangladesh, countries that have very low wages, countries where you can afford to mass produce T-shirts and still have them affordable in the store. Where we need to move industrial policy is to build the things here that you can't build anywhere else. Tariffs aren't a strong part of that policy. Industrial investment is. So the risk of Trump's policy is guaranteed. The benefit is ephemeral and unlikely.

The risk is you start a trade war. The benefit is industrial production flourishes in the United States. That's not going to happen. If you put a tariff on steel, we won't suddenly become a manufacturing base that's going to make everything that you buy here. So the appeal is there. I mean, it's a rhetorical appeal. And I absolutely get it. I think we should make more things in the United States, but tariffs won't get you there. And that's the problem is that we are all going to learn the hard way.

that tariffs won't get you there. When you say this could spark a trade war, I know I've been asking for definition after definition during this conversation, Katherine, but give me one more. What does a trade war look like and how does it affect our wallets?

Oh, it's looking like one now, right? We tell Canada we're going to tax a 25% on this tariff. And they say, well, if you do that, we're going to charge you more for energy that we send you. And then if they charge us more for energy, well, then we're going to charge you more for X. And it just becomes a tit for tat.

of if they charge this, then we'll charge this. If they charge this, then we'll charge this. That's what a trade war looks like. What's remarkable about what's happening right now is that we have had trade wars in the past, but they typically dovetail with political policy. When we start trade wars, it's because the politics comes first and the economy is the means to the end.

Trade war is not something you enter upon lightly with any country, let alone our largest trading partner. I was watching the news. I think it was NBC Nightly News. It might have been ABC. And it was local TV coverage in Canada of a grocery store. And as soon as the tariffs were announced, the guy was just taking all of the bottles of imported American liquor and putting them in a trash can. And we're like, we're not selling. I don't even care if we have them in stock. We're not selling them.

This is what a trade war looks like. It looks like petty retaliation for picking a fight. On that happy note, we are going to take a quick break. When we come back, though, we are going to talk about what you can do, right? Clearly, we have absolutely no control over what Washington is doing. But we do have some control over our own wallets and our own financial futures. Back in a second.

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We are back with Katherine Edwards, economist, Bloomberg contributor, soon to be podcaster. You want to tell us all a little bit about your upcoming podcast? Oh, I'd be so happy to. Y'all are so kind to give me airtime. But yes, I'm launching a new podcast, Optimist Economy. I'm on all the social channels as Keds Economist and Optimist Economy will be on them as well. And every week we'll talk about an economic problem and what the bright side is.

Love that. All right. What can we do? The news is just terrible. The volatility is terrible. The stock market up and down. And what do you want individuals as job holders, as savers and investors, as borrowers? What are the moves? Well, the number one move is not to panic.

The long story doesn't change. You live in the richest and most successful economy in the history of the world that produces jobs and income and wealth at a breakneck pace. And that won't change. The U.S. economy will continue to grow. It will continue to provide economic opportunity. Recessions happen every five to 10 years. And while they can be devastating, they don't portend a different economic future than the one we had before. So don't panic.

Now, the biggest risk of a recession for people is job loss. Your investment portfolio, it'll go down because the economy will go down. And if you are savvy and sophisticated enough that you want to work around that, I would always tell people, I don't do that.

I don't try to guess what's the best investment to make money off a recession because I don't really know how good I would feel if I made money off of it. And also, I don't know how successful you would be. It's a dangerous game. So I think for investors, your portfolio will go down, but for your long haul investments, it'll go back up again. But as a worker, the fear of layoff is real.

And it's not one that's easily assuaged of me just saying it'll be all right in the end. And that makes it okay if you lose your job. So what I would tell people is make sure your financial house is in order to the extent that you can. You got a credit card, try to pay it off. You have some money in savings, try to add a little. If it makes you feel better to go through your resume, do that.

if it makes you feel better to ask for a performance review for your boss to remind him that you're very good at what you do, you can do that. I should say the risk of layoff is very, very concentrated. So I think there's this myth that when recessions happen, you know, you just start to see all these layoffs and most people associate recessions with a bunch of people losing jobs. That's not really true.

The period of layoffs tends to be the start of a recession. You'll have maybe five months of elevated layoffs. What really defines a recession is having a hard time finding a job. And that when a bunch of people get dumped into the unemployed from layoff, and it just takes a long time for them to get reemployed back because firms are slow to hire. So it's not...

The worry of job loss is actually really, really acute. We won't see 10 or 15 percent of workers lose their job. Nothing like that will happen. But it'll be enough people to push up the unemployment rate and it'll take them a while to get out. So the actual risk of layoff is very, very small.

But it gets amplified when employers don't hire quickly, and that creates a high unemployment rate. But it is not as widespread of a concern. You know, the vast majority of Americans will keep their job, and they'll have the same job they have now that they will in a year. Even at the height of recessions, terrible recessions, worst recessions we've seen, like in the Great Recession, it was still, on average, about 93% of the workforce was still employed. Mm-hmm.

So keep that in mind that the layoffs are bad, but they're not bad because they affect a ton of people. They're bad because it takes a while for the small amount of people who are affected to overcome it. Got it. And I think even those small amount of people who do get laid off and find themselves looking...

Need to keep in mind, it's not that nobody is hiring during these periods. People are still hiring every day. They're just fewer. So yes, it will take potentially a little bit more time to find that next job, but it's not like you're searching for something that isn't there. That's right. Hiring slows, but it never stops.

And even in the height of the pandemic recession, people were still hiring. It's just things slow down. And if a layoff personally affects you, remember that you should be eligible for unemployment insurance. And it might not be a lot because the program is in place.

kind of disrepair, it'll be more than nothing. And I would encourage you to immediately file for unemployment insurance, which is done through your state workforce or industrial or labor commission and apply and get your weekly benefit. That is money that you paid for.

you contribute to unemployment insurance via a tax on your wages that your employer pays. So you absolutely paid for that benefit. If something happens to you, go out and get it. That's number one. And then number two, layoffs are tough and I don't want to make light of it, but a lot of people in the U S economy, at least often use layoffs to, uh,

Kind of change course. It's not like they were absolutely in love with their job and career before and they use kind of a little bit of unemployment money and the time that they don't have a job to possibly pivot to somewhere else. Not for nothing during recessions is when we see a lot of new businesses start.

People who lost their job and were like, all right, well, I wanted to go out on my own anyway, or I wanted to try this. So to the extent that you can see it as an opportunity that you didn't ask for, there's room to maneuver. That's such good advice. When we look at the recession that happened during the time of the pandemic,

There was a lot of talk calling it a she session. A lot of women took a step back from the workforce, stayed out of the workforce for a while, potentially had trouble getting back into the workforce. I think in hindsight, maybe it didn't take as long as they thought it was going to take. But

Is what's happening now likely to hit women harder, men harder? Do we not know? I don't think we would have anything to make a prediction one way or another. There are certain industries that tend to be more cyclical than others based on how they're financed. You think of something like construction industry.

It's a very male-dominated industry. When financing falls out of a housing project, the construction project goes away. Because construction requires a lot of financing, it can be sensitive to financial markets. Versus something like leisure and hospitality, you have a higher disproportionate share female workforce,

When people pull back on going to the movies or going to an event or going out to dinner, that can hit leisure and hospitality. For the most part, women are considered quite insulated from recessions because they are overwhelmingly represented amongst nurses and teachers. Two professions that have very little cyclical exposure, with the exception of a pandemic.

So the pandemic was special for that reason and so many health jobs evaporated and women are overrepresented in health support occupations because there's a lot of nurses. So I don't think I see it going in any particular way. To be fair, recessions have...

very different precipitating causes, but they do hit familiar beats. So I was actually just explaining this to a friend last night, that it's kind of like a remake of a Jane Austen novel, they're going to look different, they're going to have different people, you

But they're going to hit certain beats, right? Like it doesn't matter if it's Clueless or Emma, there's going to be a point where the main girl says, oh my God, I love Josh, right? Like they're going to hit certain marks every time, even if they look really different. So recessions will do that too. They're going to look different, but they're going to hit the same big plot points.

including oh my god I love Josh so that different look of the recession can skew slightly male or female but the plot nothing that's just we're going to see an uptick in layoffs we'll see a downtick in hiring that'll create a pool of the unemployed that pushes it up

It'll take a while for that unemployment rate to go down, but once firms feel more secure, they'll take advantage of low interest rates, invest in their company and start to expand and the economy will recover. And none of that has a male or female story. I know that you are inherently an optimist. I want us to leave this conversation on an up note. So let's talk about the gender wage gap because earlier this week, the Pew Center research arm released

report on the gender wage gap and it put the gender wage gap at 85 cents in other words women now earn 85 cents for every dollar that a man earns and believe it or not that's really good news because it's not 82 cents or 83 cents or even 84 cents the the gap is

seems to be closing. Is it actually closing or is it a mirage? It is not a mirage. It is true. And frankly, it's because we had policies in place that supported women that we have not had to a greater degree before. There are two things that happened in the pandemic that ended up helping women. One was because of all the noise that all of us made about childcare and

In the kind of pandemic recovery, the federal government stepped in and rescued the child care sector. And it gave an unprecedented amount of money to states with the mandate, you need to keep these centers open so that people can go back to work. And it needed to support the recovery. We did that in the labor force participation rate for women with children under five reached the highest levels we've ever seen.

cause and effect problem and solution. If you want women to work, to earn money, to get the gender wage gap smaller, you need to support childcare. The other thing that happened in a pandemic is that a lot of us who had the privilege of a job that we could keep while working remotely did so. And the long tail of holding on to remote work was absolutely to the benefit of women who have to deal with pickup and drop off, that school gets out at 2.15 but no job does.

You know that if you're not at pickup by 530, you're getting fined. And without the commute, a lot of women were able to maintain full time work, even with the needs of child care and children getting to and from school. We see these two policies having a beneficial effect on women.

that's showing up in the data, not just in that women are working more, but that they're earning more. To the extent that you are an advocate for yourself, you need to let your policymakers know that they walked away from something that was helping you. And either your gains don't matter, and you don't matter, or they just don't want to solve the problem. And so I think you should make your voice heard. There is, in almost every country in Europe, the right to request remote arrangements.

the right for you to tell your employer that if I meet certain conditions, you have to let me work from home. There's definitely no reason why that can't be part of U.S. labor law.

I have children under five. I get to work 30 hours a week and you can't fire me or pay me less. That could be a law. There's a lot of advocating we can do for women that the pandemic kind of backed us into that policymakers could absolutely walk forward and approach and embrace if we tell them that it mattered. They're probably not reading the Pew report on the gender gap with bated breath to see if it all worked the way they thought it would. You've got to make it clear to them what's on the line for you and your family.

We will leave it there. Thank you so much for doing this with us. Of course, I'm happy to be here. And recessions are scary, but we live in a very stable economy. And whatever happens, we will get through it. It won't be painless, but there's growth at the end.

If you love this episode, please give us a five-star review on Apple Podcasts. We always value your feedback. And if you want to keep the financial conversations going, join me for a deeper dive.

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