This line has jumped right before every single economic recession in the US since the 1980s.
This is data from the Conference Board’s Consumer Confidence Survey showing how consumers feel about the future job market.
Today, around 30% of respondents said they expected fewer jobs to be available in the next 6 months.
Historically, every time we’ve seen a reading above 30%, it happened either right before a recession started or right at the onset of one.
But at the same time, the unemployment rate is still sitting at 4.2% – which according to the Federal Reserve corresponds to “full employment.”
We 100% agree unemployment will rise, but it won’t be happening within the next 6 months.
The Job Market Reality
Most people agree that tariffs will have a negative impact on the economy.
But how big of a negative impact will tariffs actually have?
To answer that, we need to first evaluate the current job market.
If jobs are plentiful, a recession is unlikely to happen straight away.
But, if the job market is already struggling, the economy is more likely to get pushed into a downturn.
One way to gauge this is by looking at the ratio of official job openings versus unemployed people looking for work.
This basically shows us the supply versus demand in the job market.
Currently, this ratio stands at 1.
That’s weaker than a couple years ago, but still at one of the highest levels since 2000.
For context, the 2001 recession began below a ratio of 1, and the 2008 recession began at a ratio of 0.6.
So, the job market isn’t in catastrophic shape today, but it’s vulnerable to being pushed over the edge.
But we’re not convinced that tariffs will produce a recession within the next 6 months.
You see, tariffs are essentially a tax on US corporations.
There are 2 ways corporations can react:
- Pass on the cost to consumers by raising prices
- Absorb the cost, leading to lower profit margins
Some firms will try to pass costs to consumers.
But we don’t think they’ll be very successful.
Consumer confidence today is at one of the lowest levels going back to the 1950s.
Delinquency rates on consumer loans have just hit 10-year highs.
The US consumer today is very weak and can’t absorb tariff costs.
But let’s look at why corporations can potentially absorb the shock from tariffs.
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The Corporate Profit Buffer
Corporate profit margins in the US remain at record highs.
Even a 10-20% hit from tariffs would still leave these companies more profitable than any point over the last 20 years.
Prior US recessions show on average a 19% drop in corporate profit margins in the year before recession starts.
Right now we haven’t seen any contraction in profit margins yet.
Here’s another important data point by the Conference Board: CEO expectations.
The most recent reading shows 64% of CEOs anticipate the economy to worsen over the next 6 months.
The last 4 times CEO confidence was this low was in late 2022, early 2020, early 2009, and early 2001.
Looking at the US stock market following those readings, 3 out of 4 readings of low CEO confidence were actually followed by significant upside in the stock market.
Often, the very moment CEOs get pessimistic is when things actually turn around for the US economy.
The Bottom Line
Corporations still have a lot of buffer before they need to lay people off to stay profitable.
If tariffs are fully implemented and sustained, they will gradually eat into corporate profit margins.
But we think fears from consumers and CEOs are premature.
Of course, we could be wrong.
If the data changes, we may need to adjust our opinion on no recession happening in 2025.
But right now we think a resilient economy can mean a resilient stock market.
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