WeeklyWatch – Is the US on the brink of a recession?

7^th May 2025

Stock Take

A strike of US economic woe

Is there a storm brewing in the US economy? Some commentators are voicing concerns that a recession is closer than previously thought – but is the panic valid?

Between January and March – the first full quarter of Donald Trump’s presidency – the US economy shrank by 0.3% (on an annualised basis). Last week’s numbers reveal that it’s the first decline since 2022. While this was not dissimilar to analysts’ expectations of a 0.2% fall, it’s a significant slowdown when compared to the 2.4% growth in the last quarter of 2024.

Additionally, markets have been forced to adapt and change as tariff uncertainty continues to cause high volatility. Last week, WeeklyWatch focused on the impact on the US treasuries, where prices have fallen and yields have risen, as the perceived risk for investors increased.

The dollar’s value has also suffered a fall as a result of investors turning away from US assets. The dollar index compares the relative value of the US dollar to a basket of other countries’ currencies, and it suffered its worst two-month performance since June 2002. For a second consecutive month, the US dollar weakened against every other G10 currency.

Trade talk

As the end of the week drew to a close, global equity markets, which included the main US markets, were able to rally as there were indications of China and the US restarting negotiations on trade and tariffs.

But despite these seemingly positive signs, it’s not certain whether there will be a resolution when it comes to the core issues. Some of these issues include the US’s trade deficit with China and provocative trade practices like suspected intellectual property theft and significant subsidies provided by the Chinese government to their national companies.

The Head of Economic Research at St James’s Place, Hetal Mehta, doesn’t think investors should give too much weight to the US’s most recent economic growth figures despite the ‘noise’ that surrounds them. She says:

“We continue to believe there is a roughly 35% probability of a US recession and we haven’t changed that in light of the recent economic data. Too much is being made of the negative surprise on US growth because it was not that much of a miss.”

She highlights the fact that this US data is annualised, meaning figures are scaled up for a full year. The significant move in US imports was also hugely influential on the numbers; imports soared by more than 40% which was down to people trying to get ahead of the tariff changes that are due to come into effect on 9^th July.

Whether the current pause is extended or not, what happens with the tariffs will dictate how much more volatility the markets will face and whether a recession occurs sooner rather than later.

Mehta also says:

“If the tariffs do take effect in full then it’s likely to have quite a notable impact. It could even move the US to a stagflationary environment, where inflation is high, and growth is much weaker. However, given the uncertainty, we have a level of humility when it comes to predicting these things.”

A decline in consumer confidence will also likely play an influential role in determining the economic outcome. A driving force for economic growth for some time, US consumers now look like they’re being far more cautious when it comes to spending, with big companies like Starbucks and Chipotle seeing sales fall.

Furthermore, shipping from China into the US has slowed dramatically as we draw closer to the planned implementation of Trump’s tariffs. There have even been warnings of possible empty shelves in US shops in just a matter of weeks.

The savings ‘buffer’ that was built up by consumers during the pandemic period has been chipped away as time’s gone on. This can also impact consumer spending, especially within a volatile market.

But there are still some silver linings to the storm clouds! An important reason why a recession may not be an obvious outcome is the fact that the US economy starts from a strong footing. Up until the end of 2024, growth was strong – around 3% a year – which could provide a protective cushion before the technical definition of recession is met (two consecutive months of negative economic growth). But, as Mehta highlights:

“A dramatic slowdown can feel like a recession if you have had strong growth for some time.”

Might there be a contagion impact?

In part, yes. If there’s a deterioration in the world’s largest economy, the likelihood of other global economies being impacted is high, which is why investors pay so much attention to US economic data.

For the UK, the selling-off of US treasuries and confidence loss in bonds as a safe haven could impact gilts (UK government bonds). UK economic growth has also been slow for several years and doesn’t have as big a buffer as the US, meaning that it wouldn’t take as much of a shock to place the UK into recession.

In recent years, the euro area has also had slow economic growth, impacted by Covid, falling exports and increased imports, particularly energy imports where there’s been heavy reliance on countries like Russia for supplies.

Having said this, the fiscal changes that are happening Germany – where they’ve pledged to spend €500 billion on infrastructure investment – will go some way to supporting Europe but will also take time to filter through to the economy.

As far-reaching as Asia?

No nation is exempt from the fallout of the US’s deterioration. Due to the wide-reaching nature of the tariffs, most nations are susceptible, but this varies in extent.

China is the most obvious nation that will be affected, due to the scale of tariffs that have been proposed. Chinese consumer demand has declined over the last year or so – retail sales have fallen. But unlike some nations, China has more fiscal firepower to push back on the tariffs and support its own economy to decrease their dependency on exports.

Time for a moment of calm?

Volatility has defined the markets over the last few weeks, but according to Mehta, April has been unusually volatile for both markets and economists; bond and stock markets soared to new highs and dropped to new lows before returning to more normal levels. Predictions concerning a US recession have gone down many different avenues.

Mehta says:

“We have seen a lot of volatility in the way that economists are assessing the state of the economy. I can’t remember a time in recent history when in the space of 48 hours so many economists changed their view.

“Usually economists are slower to move, they wait for the data and for a critical threshold to be reached but recently it has been very noisy. Taking the long-term view and not reacting quickly always has to be the better option.”

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Wealth Check 

The retirement roadmap – what to save in your 20s, 30s, 40s and beyond

Two common questions that arise around the topic of retirement:

1. How much money will I need?
2. Have I left it too late?

Important questions, and ones that most of us don’t carefully consider until we reach middle age.

Good news! By spreading your savings over decades – and starting early – you’re far more likely to secure a great retirement.

Many of us believe we’re too old or too young to begin saving for retirement. But a comfortable retirement needs long-term practical planning. Let’s break down the retirement saving process, decade by decade.

“How much money will I need?”

A pension pot worth about 10 times your annual salary by the time you retire is well advised. To help you define this figure, a financial adviser is extremely useful, plus they can help you create a personalised plan for your long-term saving.

These plans incorporate everything you want to have in your retirement and will consider inflation and possible medical or social care costs in the future.

Starting young – saving in your 20s

Aim to have saved the equivalent of a year’s salary by the time you turn 30 – this can be in personal savings or in your workplace pension.

Basic-rate taxpayers receive an extra £20 for every £100 they save into their pension! By starting early, earning power can literally translate into getting money in the bank, and there are many years ahead for you to benefit from compounding.

Saving in your 30s

You should be aiming to have retirement savings equal to three times your annual salary.

Starting small is fine if needed. You can gradually build on your retirement savings as time goes on. Affordable means sustainable. Making an increase in your contribution year on year in line with inflation or a wage rise is a tax-smart plan also.

Saving in your 40s

Aiming to have savings that total six times your annual salary by the time you turn 50. This is the time where you usually see earnings peak – it’s the decade to optimise!

Saving in your 50s

By 60, you should aim to have saved eight to 10 times your salary and this is when you should consider putting specific plans for your retirement income in place.

Is 60 too late to start saving?

Definitely not! But we do recommend that you start earlier, and seeking out the help of a financial adviser can help you get started.

50s to 60s – getting prepped and ready for retirement

It’s only half the story to build your assets. Having a financial plan in place to help you get ahead is key. It’s never too early to start thinking about how you want to utilise the income you’ve saved in the most sustainable, tax-efficient way.

Get in touch with one of our advisers today and achieve your retirement dreams.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

In The Picture

One month, two sides, same index – April has been quite the rollercoaster!

The Times, 4^th April 2025 – “FTSE suffers biggest drop since pandemic amid tariff turmoil.”

The Standard, 28^th April 2025 – “FTSE 100 matches longest run of consecutive gains in eight years.”

This serves as a good reminder that:

• Framing matters. When in isolation, each headline feels like a turning point. But step back – as the chart reveals – and April’s highs and lows hardly register for long-term investors.
• Timing shapes perception. Whatever time we check the news, we could see panic or positivity, but we rarely see the full picture.
• Power is perspective. Without dips, we probably wouldn’t see the rally. Volatility often prepares the way for recovery; it’s just the nature of markets!

These headlines won’t disappear, and this won’t be the last drop (or rally) we’ll see happen this year.

So, what’s the way forward? Keeping focused on what matters is key: long-term goals.

Please note it is not possible to invest directly into the FTSE and the figures shown do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.

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SJP Approved 06/05/2025