Verdict: No recession imminent. Risks elevated at 25-35%.
The US economy shows robust GDP growth (4.3%) but faces headwinds: unemployment at 4.6%, consumer confidence below recession thresholds for 11 months, and the Sahm Rule indicator at 0.43 (trigger: 0.50). Wall Street consensus: soft landing, not collapse. Government data reliability compromised by 43-day shutdown. Cross-validation with private sector confirms trends. Monitor: December jobs report, consumer spending, global shocks.
The US economy in late 2025 presents a paradox: robust GDP growth (4.3% Q3) coexists with weakening consumer confidence and a Sahm Rule indicator approaching its recession trigger. Wall Street's consensus—led by Goldman Sachs and Morgan Stanley—forecasts no recession as their base case, assigning 25-35% probability to a downturn in 2026. However, government data reliability has been compromised by a 43-day shutdown and political controversies surrounding the Bureau of Labor Statistics. This report cross-references 38 sources from government agencies, Federal Reserve banks, Wall Street research, and independent economists to answer: Is the US economy headed for recession?
Verdict: Recession is not imminent, but risks are elevated. The economy is in a "soft landing" trajectory but remains vulnerable to shocks.
I. The Numbers: Current Economic Indicators
As of late December 2025, the key economic indicators paint a picture of continued growth with emerging cracks. The Bureau of Economic Analysis reported Q3 2025 GDP growth at 4.3% (annualized)—well above the 2-3% considered healthy expansion. [1] However, the Q4 2025 estimate has been postponed indefinitely due to insufficient data collection following the October-November government shutdown. [1]
The labor market shows signs of softening. The unemployment rate rose to 4.6% in November 2025—the highest since September 2021—up from a low of 3.7% in early 2024. [2] [25] This represents a 0.9 percentage point increase from the 12-month low, placing the Sahm Rule indicator at 0.43—just 0.07 points below its 0.50 trigger threshold. [7]
Inflation, meanwhile, has continued its descent. The Consumer Price Index (CPI) stood at 2.7% year-over-year in November 2025, down from a peak of 9.1% in June 2022 and approaching the Federal Reserve's 2% target. [3] Core CPI, excluding food and energy, registered 2.6%. [3]
| Indicator | Current Value | Signal | Source |
|---|---|---|---|
| GDP Growth (Q3 2025) | 4.3% | ✅ Strong | BEA |
| Unemployment (Nov 2025) | 4.6% | ⚠️ Rising | BLS |
| Inflation (CPI YoY) | 2.7% | ✅ Near Target | BLS |
| Fed Funds Rate | 3.5-3.75% | ✅ Cutting | Federal Reserve |
| Consumer Confidence | 89.1 | ❌ Warning | Conference Board |
| Sahm Rule | 0.43 | ⚠️ Near Trigger (0.50) | St. Louis Fed |
II. What Are the Odds? Recession Probability Models
Economists use multiple models to assess recession probability. The results for late 2025 show elevated but not imminent risk:
The Federal Reserve Bank of New York's model, based on the Treasury yield curve spread, estimates a 25.05% probability of recession within the next 12 months (as of December 5, 2025). [5] This is down from 33.56% a year prior, reflecting the normalization of the yield curve.
The Cleveland Fed model is more optimistic, estimating just 17.1% probability of recession within one year. [6]
Private sector forecasts are somewhat more cautious. J.P. Morgan Global Research assigns a 35% probability to a US and global recession in 2026—the highest among major Wall Street banks. [11] The Mortgage Bankers Association also estimates roughly 35% recession odds for 2026. [20]
Meanwhile, Goldman Sachs and Morgan Stanley do not forecast recession as their base case. Goldman projects "sturdy" global growth of 2.8% in 2026 and US growth of 2.6%, driven by tax cuts and easing financial conditions. [10] Morgan Stanley forecasts US real GDP growth of 1.8% in 2026, acknowledging a "mild recession" only as a downside scenario. [12]
III. Leading Indicators: The Warning Signals
Yield Curve: The False Alarm?
The Treasury yield curve—historically the most reliable recession predictor—spent a record 16+ months inverted from July 2022 through late 2024. [27] [29] An inverted curve has preceded every US recession since 1960 by 6-24 months. Yet no recession materialized.
As of December 2025, the curve has normalized. The 10-year minus 2-year Treasury spread stands at +0.62% to +0.68%, indicating a healthy positive slope. [27] Some analysts interpret this as a signal that recession risk has passed; others argue the recession is merely delayed.
Consumer Confidence: Persistent Pessimism
The Conference Board's Consumer Confidence Index fell to 89.1 in December 2025, down from 92.9 in November. [13] [26] More troubling: the Expectations Index has remained below 80 for 11 consecutive months—a threshold historically associated with recession risk.
Consumers cited prices, inflation, tariffs, and politics as their primary concerns. Perceptions of job availability weakened, with fewer viewing jobs as "plentiful" and more finding them "hard to get." [13]
Sahm Rule: On the Precipice
The Sahm Rule, developed by economist Claudia Sahm, signals recession when the 3-month moving average of unemployment rises 0.50 percentage points above its 12-month low. [9] At 0.43 in November 2025, the indicator is just short of triggering. [7] [22]
Moody's economists noted in December 2025 that the US is "on the precipice" of triggering the rule. If unemployment remains at 4.6% in December, the Sahm Rule will activate. [30]
The 43-day government shutdown (October 1 - November 12, 2025) severely impacted federal data collection. The BLS did not collect household survey data for October 2025, and November data had record-low response rates (64%). Economists advise caution in interpreting recent reports. [23] [24]
IV. Cross-Validation: Is the Government Data Reliable?
A recurring theme in social media discourse is the claim that government economic data is manipulated to conceal a recession. We examined this claim through cross-validation with private sector data sources.
The Shutdown Problem
The 43-day shutdown created real data quality issues:
- Missing October data: No household employment survey was conducted
- Low November response rate: Just 64% (vs. typical 85-90%)
- Missing housing data: Rental surveys not collected, skewing CPI calculations
The BLS itself acknowledged these limitations in its November release, noting "higher uncertainty" in the estimates. [2]
Political Interference Claims
Political concerns intensified in 2025:
- July 2025: BLS Commissioner Erika McEntarfer was fired following a disputed jobs report [32]
- August 2025: E.J. Antoni (Heritage Foundation) appointed as new commissioner [32]
- Project 2025: Proposals to merge statistical agencies raised alarm among economists [32]
Cross-Validation: What Private Data Shows
We compared government data to independent private sector sources:
- Retail Sales: NRF projects +3.7-4.2%; Mastercard reports +3.9% — ✓ Match [15] [16]
- Employment Trends: ADP payroll data shows similar slowing — ✓ Match
- Inflation Perception: Consumer surveys say "high"; CPI says 2.7% — ↔ Partial (perception gap)
Assessment: While shutdown-related data quality issues are real, cross-validation with private sector data does not support claims of systematic manipulation. Government and private data broadly align on key trends. The perception gap between official inflation (2.7%) and consumer sentiment ("prices are high") likely reflects cumulative price increases since 2020, not current fabrication. [38]
V. Sector Analysis: Housing and Consumer Spending
Housing: Gradual Stabilization
The housing market—often an early recession indicator—shows signs of gradual rebalancing rather than distress:
- Mortgage rates: Expected to average 6.0-6.4% in 2026, down from 7%+ peaks [17] [20]
- Home sales: Forecast to rise 3-7% in 2026 [18] [19]
- Home prices: Modest 1-2% appreciation expected [37]
Crucially, mortgage delinquency rates remain low and homeowners hold substantial equity—factors that argue against a 2008-style housing crash. [21]
Consumer Spending: Cautious but Continuing
Holiday 2025 retail sales rose 3.9% year-over-year (Mastercard SpendingPulse, Nov 1 - Dec 21). [15] Online sales surged 7.4%. [15]
However, consumers exhibited value-seeking behavior:
- Prioritizing gifts over non-essentials (decorations down)
- Actively hunting for deals across channels
- Inflation-adjusted growth more modest at 2.2% (Visa data) [35]
This "cautious resilience" suggests consumers are stressed but still spending—a soft landing pattern rather than collapse. [36]
VI. Verdict: Is a Recession Coming?
After analyzing 38 sources across government agencies, Wall Street research, and independent economists, our assessment is:
✅ Positive Signals
- GDP growth remains robust (4.3% Q3 2025)
- Yield curve has normalized (no longer inverted)
- Wall Street consensus: No recession in base case
- Federal Reserve actively cutting rates
- Inflation near target (2.7%)
⚠️ Warning Signals
- Consumer Confidence expectations below 80 for 11 months
- Sahm Rule at 0.43 (trigger: 0.50)
- LEI declining (-2.1% over 6 months)
- Unemployment rising (4.6%, up from 3.7%)
- Government data quality compromised by shutdown
❌ Not Present
- Housing market collapse
- Credit crisis or banking stress
- Mass layoffs or hiring freeze
- Inverted yield curve (now normalized)
The US economy is NOT currently in recession and a recession is NOT the most likely outcome for 2026.
However, recession probability is elevated (25-35% per multiple models). The economy is on a "soft landing" trajectory—slowing from 4.3% growth toward 1.7-2.5%—but not contracting.
Key risks to monitor:
- December unemployment report (Jan 9, 2026): Will Sahm Rule trigger?
- Consumer spending into Q1 2026: Sustained or collapsing?
- Global shocks: Trade policy, geopolitics, oil prices
The viral claim that the US is in or entering a recession is not supported by current data—though skepticism about data quality is warranted given the shutdown and political controversies.