Is a recession on the horizon?
Banking giant JPMorgan increased its odds last week that the U.S. will enter a recession this year from 40% to 60%. Financial firm Goldman Sachs and research firm Moody’s Analytics also recently predicted the probability of a recession in 2025 at 35% and 40%, respectively — citing an emerging trade war, massive federal employment cuts and higher inflation risks among other factors.
President Donald Trump announced sweeping tariffs on April 2 on nearly all of the country’s trading partners. But he reversed course a week later saying he would suspend the tariffs for 90 days, with the exception of China, whose import tariffs were at 145% as of Thursday. Trump has also said he plans to slap tariffs on pharmaceutical drugs, lumber, copper and computer chips.
The tariffs have stirred up concerns from Wall Street to Chicago businesses, who worry a trade war could bring higher prices that will slow consumer spending. Economists are also watching a number of other economic indicators such as unemployment and business sentiment.
Here’s what you need to know about recessions and how one could affect Illinois.
What signals indicate a recession has started?
A clear sign would be a rise in job losses and unemployment increasing, something economists are not now seeing nationwide. The number of new job openings, 7.6 million in February, has also not changed much over the last year.
The U.S. unemployment rate was 4.2% in March, up from 4.1% in February. It has been slowly increasing since July 2023, when it was 3.5%. But the figure is significantly lower compared to what it was during the pandemic, when unemployment was 14.8% in April 2020, still the highest level since 2015.
In Illinois, the latest reported unemployment rate was 4.8% for February, slightly down from 4.9% in January. The rate had been hovering around 5% for most of 2024. The state’s unemployment rate hit a 10-year high of 18.3% in April 2020, according to the U.S. Bureau of Labor Statistics.
When determining a recession risk, economists also look at:
- Negative gross domestic product: As of April 3, the Federal Reserve Bank of Atlanta’s forecasting model suggested economic growth may be negative in the first quarter of 2025, saying real GDP may contract by 2.8%. Other models, including the New York Fed’s, forecast 2.9%. Peter Bernstein, vice president of RCF Economic and Financial Consulting, said two consecutive negative quarters of GDP is commonly talked about as a recession indicator, “but that’s not the real definition of a recession.”
- Consumer spending: Many consumers have become more pessimistic about the economy. A University of Michigan survey last month found consumer sentiment dropped by 30% since November 2024. As people begin to feel more uncertain about the economy, researchers said it could mean they’re less likely to spend or make investments. Even high-income consumers were concerned about their personal finances, with 26% expecting to be better off financially in a year, compared to 42% in August 2024.
“These odds of a national recession have risen dramatically as uncertainty and chaos have been unleashed in our economy,” said Frank Manzo IV, economist at the Illinois Economic Policy Institute. “That’s been driven by falling consumer confidence, layoffs at the federal government, inflation that has become very sticky and a trade war that is causing high levels of uncertainty for businesses and investors.”
Is Illinois prepared for a recession?
No state is recession-proof, but Illinois is better positioned to overcome challenges and withstand the forces that trigger recessions than at any point in recent history, Manzo said.
In recent years, Illinois has seen nine credit rating upgrades, letting the state borrow money at lower interest rates and saving taxpayers money. Along with growing the state’s unemployment insurance trust fund, which is used to pay out unemployment benefits, the state is more prepared now than it was in 2008 and 2020, according to a December 2024 report from IEPI and the Project for Middle Class Renewal at the University of Illinois Urbana-Champaign.
Manzo also cited the program WorkShare IL, started in 2021, that offers employers an alternative to layoffs by reducing their employees’ work hours while making them eligible for pro-rated unemployment benefits. For example, instead of laying off one-fifth of their employees, an employer could scale back their hours from five to four days a week while the state offsets the partial loss in earnings.
“This work share program can lower costs for taxpayers and save jobs during recessions. At its peak in July 2020, half a million Americans were in work share agreements, but none were in Illinois because we didn’t have the program up and running yet,” Manzo said.
But Trump’s economic policies, particularly on tariffs, create uncertainty, according to a February report by Moody’s Analytics for the state’s Commission on Government Forecasting & Accountability.
“Illinois has a lot at stake, given its reliance on manufacturing and logistics and its above-average exposure to foreign trade. Rising tariffs would hurt demand and drive input costs much higher, which would strain the state economy, given its above-average reliance on imports,” according to the report.
When do we know if we’re in a recession?
Bernstein said the definition of a recession is decided by the National Bureau of Economic Research.
Based in Cambridge, Massachusetts, the nonpartisan group consists of more than 1,800 academic economists. Its Business Cycle Dating Committee determines when a recession starts and ends. But it typically doesn’t declare a recession until well after one has begun, sometimes as long as a year afterward.
“Because a recession must influence the economy broadly and not be confined to one sector, the committee emphasizes economywide measures of economic activity,” according to the bureau.
Bernstein said, “What they look for is sort of a pronounced and prolonged period of general economic decline — meaning less production, less employment, less spending, less income.”
How long do recessions last?
Short answer: It depends.
The 2008 Great Recession lasted 18 months, ending June 2009, and took the country nearly a decade to recover its job losses. It was the longest since the Great Depression, starting in 1929 and lasting over 10 years.
The most recent pandemic-fueled recession lasted two months, starting in March 2020 — the shortest recession on record, according to the bureau.
“Recessions typically only last a few months, and they are not usually as bad as 2008,” Bernstein said. “We recovered from the COVID-19-related recession very quickly because of the federal government’s huge response and multiple packages to help the nation recover. It all depends on what the cause of it is.”
What are some business owners doing to prepare?
Michelle Mekky has been running her media relations firm, Mekky Media, in Chicago for nine years. After weathering 2020, she’s worried about how current recession fears might shrink marketing budgets for her restaurant and retail clients and how the economic uncertainty will affect them.
“I feel there is so much confusion right now about whether the economy is going into a recession. Are we going to be OK this year or not? The uncertainty is definitely having a ripple effect on my company and our clients,” she said. “I’m trying to get ahead of any dips in revenue or any potential ramifications of tariffs that might affect clients.”
Aisha Murff owns Haire’s Gulf Shrimp, a family business on the South Side founded by her late husband, Finnie Haire, in 2001. She runs two locations, one in Greater Grand Crossing and another in the South Loop, offering its classic fried shrimp “bomb bags” over the counter.
In 2008, Haire’s business was smaller, Murff said. Before they got married, he would tell stories about how he had to sleep in the back of the restaurant to make ends meet.
“He survived, starting off at a [train] caboose, and then went to a small brick-and-mortar, and it has sustained the highs and lows of the economy,” she said.
When COVID-19 came to Chicago, her business took a hit. She stayed afloat by pivoting to carryout orders through third-party delivery apps.
Now she is anxious about how tariffs could raise her supply costs, like paper towels and ingredients. She also worries fewer orders will force her to raise prices for her Greater Grand Crossing customers, who may not be able to afford the increase. That uncertainty was enough to make her reconsider plans for expanding to the suburbs.
“If another recession comes along, we would never shut down,” she said. “When he passed away, I promised him that I’d keep it a legacy business. I don’t want to lose those customers that have been loyal to my husband or [menu] price myself out of the neighborhood.”
