The U.S. economy is showing signs of strain, with key indicators signaling potential recession risks. Housing starts, a critical barometer for economic health, have been seeing declines, a trend that historically precedes downturns. On top of this, austerity measures, aggressive tariff policies, and inflationary pressures are also raising worries about economic stability.
Here are five factors that America is headed into a recession in 2025. Since our story was published, the Atlanta Federal Reserve tracker is now pointing to negative GDP growth for the first quarter of 2025.
1. Housing Starts Are Rolling Over, Recessions Have Always Followed Rollovers
Housing starts—the number of new residential construction projects that begin—are on the decline, a trend that has historically preceded economic recessions. With the latest data showing a significant “rollover” in housing starts, many are now questioning whether this could signal a broader economic slowdown.
According to Carl Quintanilla, a prominent financial analyst, the most recent housing data reveals a troubling trend. In a recent analysis shared on Bluesky, he quoted Bespoke Investment Group that housing starts had “completely rolled over from their peak,” a development that has historically been a reliable indicator of recession. “Recessions have always followed a rollover in Housing Starts,” Quintanilla posted, quoting Bespoke Investment Group, which suggested that the timing of this downturn could have serious consequences for the broader economy.
Housing starts have been closely linked to the health of the U.S. economy for decades, according to the blog Calculated Risk. A sharp decline in construction activity often leads to job losses in the construction sector, a reduction in consumer confidence, and lower demand for related goods and services. During the 2008 housing crisis, housing starts plummeted, leading to widespread job losses and a deep recession that saw the U.S. economy contract by 4.3 percent, Newsweek reported.
2. Austerity: Radical Cut Backs In Government Spending And Mass Government Layoffs
The U.S. government’s aggressive austerity measures, led by the Department of Government Efficiency (DOGE), have resulted in mass layoffs and drastic spending cuts, Salon reported. While proponents argue that reducing government debt and balancing the budget could benefit the long-term economy, the short-term impact is concerning and recessionary. Economists predict that the layoffs of tens of thousands of federal workers, including essential personnel from agencies like the FAA and USDA, could trigger a recession, CNBC reported. The loss of government productivity, especially in crucial sectors like aviation safety and public health, raises fears of broader economic instability, despite the potential long-term fiscal benefits.
3. Inflation
The U.S. economy faces significant risks, with inflation surging unexpectedly, particularly in the latest Consumer Price Index (CPI) report. While some believe the crackdown on illegal immigration and higher tariffs will boost America in the short term, experts warn these policies may drive inflation even higher, Fox Business reported. Construction workers, a key demographic in any recession, are also feeling the pressure as stricter immigration enforcement disrupts labor availability, according to Housing Wire. This, combined with rising tariffs, may spark increased costs for consumers, potentially increasing the likelihood of a recession as businesses pass these costs onto the public.
4. AI Speculative Bubble Assumptions Are Being Challenged
Nassim Taleb, author of “The Black Swan,” has raised alarms over the fragility of tech stocks, particularly Nvidia, after its 17 percent drop at the end of January. Taleb warns that the AI sector may face a major downturn, drawing parallels to past tech failures. Speaking at Miami Hedge Fund Week last month, he highlighted how wealth is concentrated in a few stocks like Nvidia, calling it an unsustainable structure, Benzinga reported. Taleb’s warning extends to the electric vehicle market, suggesting it may follow a similar path. He cautioned investors to brace for potential drawdowns far larger than the recent selloff.
Gary Smith, Fletcher Jones Professor of Economics, warns that AI stocks may be another speculative bubble, similar to the dot-com crash, Pomona College reported. Smith highlights the “Greater Fool Theory,” where investors overpay based on speculation, ignoring the lack of income potential. AI “story stocks” thrive on exaggerated promises, like AI’s ability to revolutionize productivity. Despite AI’s usefulness, Smith argues that it won’t lead to “the end of work” as predicted, due to its inability to think critically or understand context.
5. Political Volatility And Constitutional Crisis Risks
The unpredictability of government actions, such as changing tariffs, can harm global investment decisions. For instance, higher tariffs in Mexico could push the country into recession, which would have widespread implications. This concern was recently highlighted by the Bank of Mexico. The global economy’s hyper-connected nature increases risks when drastic policies are enacted quickly. Moreover, a constitutional crisis, like the one caused by President Trump’s actions, exacerbates uncertainty, making it even more difficult for markets to stabilize in the short term. Legal challenges and political volatility, such as power struggles and executive overreach, only add to the instability.
Just over a week into his second term, Trump took steps to consolidate power, igniting chaos and raising concerns of a constitutional crisis. His administration’s most controversial move was halting federal payments to ensure compliance with Trump’s ban on diversity programs. This directive, which was blocked by a federal judge, threatened funding for police departments, shelters, and other vital services, AP reported. The administration later rescinded the order. Although Trump’s team denied Medicaid was impacted, they acknowledged a temporary shutdown of the portal for states to file for reimbursement due to a technical error.source:
Citadel CEO Ken Griffin criticized Trump’s trade rhetoric, warning it erodes trust in the U.S. as a reliable partner, NBC reported. Speaking at the UBS Financial Services Conference, Griffin stated, “The bombastic rhetoric, the damage has already been done,” adding that it was a mistake to use such language when negotiating. Griffin’s comments followed Trump’s recent decision to impose 25% tariffs on steel and aluminum imports. While Griffin supported Trump in the past, he expressed concerns that the tariffs’ hostile dynamics could make long-term investments difficult for multinational companies and investors.
Democrats warn that Trump’s use of executive power may lead to a constitutional crisis, recalling the Watergate era. Trump has overhauled the Justice Department, collaborated with Elon Musk, and signed numerous executive orders. Constitutional experts like Jeffrey Rosen argue that a true crisis occurs when a president refuses to enforce a Supreme Court ruling, which Trump has not done, CBS reported. Legal scholars suggest Trump is testing the limits of executive power. Despite widespread protests, Republicans are largely supportive or indifferent. Trump’s social media posts hint at his belief in near-absolute power, unsettling critics.
