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All parents of young children taking a family car trip are familiar with the refrain ---- are we there yet? Economist are always looking for signs of a recession and asking themselves the same question---- is the US economy in recession? The search for some clues is found at both macro economic and sectoral levels.

The US government preliminary estimates for the first quarter unmistakably revealed a decline in GDP. Conventionally, two consequent quarterly declines in economic output define arecession. To the extent that the US tariff policy remains a work-in-progress, it most likely that a recesision underway. This will not be known for another four months. 

This decline has taken place at the same time the stock market has dropped and long-term interest rates have risen. Both signal that a recessionary environment can often feature higher prices depressing demand, both working in tandem to suppress growth.

The main driving force behind this quarterly slump is the surge in imports (statistically, imports are subtracted from exports in calculating GDP.)Ironically, the US trade picture worsens under the shadow of higher tariffs.

Perhaps, the biggest distorting factor is the rush to beat the imposition of tariffs. Thousands of small and medium-sized businesses, many rushing seasonal buying, are building up inventories to the fullest, although that behaviour is costly to maintain and cannot continue indefinitely. Eventually replacing inventory will come with a higher price tag once tariffs are fully enforced.

Moreover, growth is hindered by a very reluctant consumer. The more telling feature of consumer behaviour is the measure of real final sales which nets out inventory changes and, in essence, measures the sales that go out the door at the retail level. Last quarter, real final sales dropped by 2.5% annualized. The US consumer has started to hold down spending, as uncertainty stalks the economy. 

Employment growth is slowing down. The financial markets were disappointed that ADP private sector employment estimates, predicted 125,000 new jobs for April. Instead, the private sector recorded only 62,000 new jobs. Continuing unemployment claims rose to 1.92 million last month, the highest-level since November 2021. 

Industrial profits are slated to take a serious beating from the universal tariffs announced on April 2. Industry officials remain on guard because of the chaotic behaviour of the Administration regarding the amount and timing of new tariffs.No industrial sector faces a greater challenge than in the auto sector from tariffs, as high as 25%. General Motors, for example, released its profit forecast for 2025, featuring a 20% drop due to the tariffs. Overall, the company expects that the tariffs will cost $4-5 billion this year. The industry expects car price to raise as much as $3000 on a mid-size vehicle. 

There is no better way to gauge economic performance than at port facilities. US West Coast port facilities expect a decline of more than 1/3 in volume as retailers throughout the country stop all shipments from China. Shipping activity has always been the “canary in the coal mine” when judging international trade patterns. US ports are bracing for a severe drop in activity, and possible layoffs. The recession has begun in the U.S. and no doubt will infect its trading partners such as Canada and Mexico.

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