The US isn't guaranteed to enter a recession, but the Iran war could be a drag on the economy.
The US isn't in a recession, based on conversations with six economists.
The Iran war complicates the picture, depending on how long it lasts and the severity of its effects.
Even if the US doesn't enter a recession, people aren't feeling so great about the economy.
Claudia Sahm, the chief economist for New Century Advisors, said there are renewed concerns of a recession due to the conflict and the spike in oil prices amid disruptions in the Strait of Hormuz. She said the key factor is how long it lasts and how severe the effects will be on the US.
"There are reasons to be concerned, but there aren't clear signs that we're headed for a recession," Sahm said.
Business Insider spoke with Sahm and five other economists about whether the US is in a recession and how the Iran war changes the odds of one coming. Most of them agreed the US can still avoid one, but there are economic risks ahead.
What is a recession?
Sahm said a recession means things are not just slowing down across the economy, but going in reverse. There have been signs of cooling in the job market, real gross domestic product growth, and retail sales, but the indicators haven't turned consistently negative.
The National Bureau of Economic Research makes US recession decisions, which takes time because the committee waits until there's "sufficient data."
The committee looks at data from federal statistical agencies and said there's no rule about what measures to use. NBER has, for the last few decades, given the most weight to real personal income outside taxes and federal payments like SNAP and nonfarm payroll employment.
Job growth has dramatically slowed over the last couple of years, most recently with the surprise decline in employment revealed in the February jobs report.
Real personal income excluding transfers is up from a year ago as of January, but growth has been fairly stagnant recently.
Manufacturing activity, another recession metric NBER typically considers, has been increasing. NerdWallet's senior economist, Elizabeth Renter, said that in a recession, there would usually be a manufacturing pullback.
Lydia Boussour, a senior economist at EY, said there are no recession signals flashing, adding that consumers are still spending, and layoffs aren't broad-based. She said a recession isn't EY's base case because the economy still has forward momentum, even if the country's growth became more fragile before the Middle East conflict. She said the risk and macro impact depend on the duration and the severity of the shock.
People often look to whether there have been two straight quarters of economic contraction as measured by gross domestic product, which hasn't happened since 2020.
What role does the Iran war play in a recession?
The increased risk of a recession triggered by the war depends on how long the conflict lasts and how it trickles down to other areas of the economy.
Mark Hamrick, senior economic analyst at Bankrate, said the risk of a recession has increased since the start of the Iran war, and we're probably approaching a 50-50 likelihood of a recession in the next 12 months. "It speaks to the complexity and the uncertainty of the moments in which we live," Hamrick said.
He said the catalyst would start with the price of crude oil, then the prices of gas, jet fuel, and diesel for trucking and commercial shipments. That could then lead to higher prices in food and building materials.
Sahm said it's still the early days of the conflict, and until there's a handle on the situation in the Middle East, it will be hard for businesses to respond and for people to gain clarity from data releases. Sahm said to watch the change in the unemployment rate, the yield curve, and financial markets to see where we're going.
Sahm said recession indicators tend to be backward-looking. People can look at financial markets data for more real-time insights, but Sahm said events are fast-moving, so that could also be hard to read.
Renter said the economy has "been incredibly resilient despite economic uncertainty, despite tariffs," but the war could push it over the edge.
Inflation has cooled down, and the job market isn't robust
Chris Martin, a senior economist at Glassdoor, said the data doesn't look too bad right now, especially after the early COVID period when inflation generally accelerated, peaking in 2022.
"The tricky part is that these new shocks keep showing up," Martin said, referring to the war and tariffs.
Economist Guy Berger said he would worry if the war drags on and oil prices remain elevated.
"That's the kind of thing that's going to benefit a relatively small number of people and energy-producing industries and parts of the country, and harm the rest of us," Berger said.
He described the job market as somewhat "sickly," with unemployment ticking up, an unfavorable environment for graduates, and low hiring.
"It is a bad idea to keep whacking the job market like a piñata and hoping that it doesn't break, even if it's held together so far," Berger said.
Martin said unemployment, which typically rises during a recession, has been pretty stable and low. He said the share of people unemployed for at least 27 weeks has increased, but it's not historically high.
More people claiming unemployment benefits could be an early warning sign for a recession; Renter said a spike in claims could later be reflected in monthly unemployment.
Consumers can still feel under pressure without a recession
Just because there isn't a recession doesn't mean people feel great about the economy.
Hamrick said Americans don't need an official recession call to feel downbeat amid years of affordability challenges. He added that the economy isn't developing in a way that's helping many middle- and lower-income households. Gas prices have been climbing, job growth is concentrated in specific, narrow industries, and some people have pulled back on spending.
"We shouldn't fault Americans for making an imprecise judgment about the economy relative to recession, because the current situation has some threats which are similar to recession, even if the technical definition is not yet met," Hamrick said.
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Consumer sentiment, as measured by the Surveys of Consumers at the University of Michigan, fell about 6% from February to March. The surveys' director, Joanne Hsu, said in a news release that "consumers appear to believe that any negative economic consequences of the Iran conflict are likely to be limited primarily to the short run," but sentiment can change if the war drags on and leads to higher prices.
Despite the drop in sentiment, Sahm noted we're not quite at the level of panic that typically comes with a recession. "One of the pieces that will often be the last shoe to drop into a recession will be a crisis of confidence," Sahm said, adding she's surprised by how muted responses to events have been.
Sahm added, "If people get worried and they act on those worries in terms of pulling back on their spending, not hiring the extra worker, that's when things start to really kind of spin out and you end up with a recession."
This article was written by Madison Hoff from Business Insider and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.