The possibility of a US recession as early as May 2025 is gaining attention, with BCA Research highlighting several warning signs. While the economy has shown resilience in recent years, key factors, like dwindling pandemic-era savings, rising consumer delinquencies, impending tariffs and aggressive federal spending cuts could tip the scales toward an economic downturn. This article explores these risks and how they might shape the US economy in the coming months.

1. Less Resilience in the US Economy

Back in 2022, while the global economy recovered from the COVID-19 pandemic, many investors expected developed economies, particularly the US, to enter into a recession. However, these forecasts largely overlooked the boost provided by increased pandemic savings and government stimulus packages.

Today, those excess savings have dried up, removing a key buffer against economic shocks. Without this cushion, the US economy is now more vulnerable to a recession than it was during and post the pandemic.

Moreover, consumer debt is rising at an alarming rate. Credit card and auto loan delinquencies are climbing, returning to levels last seen before 2012. Higher interest rates, coupled with persistent inflation in key sectors like housing and healthcare are making it more difficult for Americans to manage their debt. If these trends continue, declining consumer spending could act as a catalyst for an economic contraction.

2. The Impact of Tariffs

US imports surged in January 2025, largely due to businesses increasing their imports in anticipation of expected tariffs under the Trump Administration. This front-loading of imports could lead to lower GDP growth in the future, as the increase in supply is not being driven by genuine consumer demand.

Tariffs are expected to add further pressure on consumers, while uncertainty surrounding their extent and timing is making businesses cautious. The resulting decline in consumer confidence and business investment is another signal pointing toward a potential recession.

Beyond consumer goods, tariffs will also impact intermediate goods critical to manufacturing. For example, in the automotive industry, parts often cross borders multiple times between the US, Canada and Mexico before being installed in the final product. With tariffs applied at each crossing, costs will compound throughout the supply chain further adding strain to businesses and ultimately the consumer.

3. The Role of the Department of Government Efficiency (DOGE)

The Department of Government Efficiency (DOGE) has adopted a “survival cost-cutting” approach, reducing federal spending to the bare essentials and only rebuilding what breaks. This strategy, often seen in corporate turnarounds, assumes that fewer things are essential than expected, but that truly critical functions become even more vital.

While this approach effectively cuts bureaucratic bloat, it comes with significant economic consequences. The reduction in federal spending will lead to job losses both directly (through federal layoffs) and indirectly (as government contractors lose business). These job losses will put additional pressure on the labour market and contribute to recessionary trends.

Conclusion: A Perfect Storm for a Recession?

With pandemic-era savings depleted, rising consumer delinquencies, looming tariffs and deep federal spending cuts, the US economy faces mounting headwinds that could trigger a recession. While the economy has shown resilience in recent years, these factors collectively increase economic vulnerability

Whether the US can avoid a recession will depend on how businesses, consumers and policymakers respond to these challenges. Strategic economic policy, corporate adaptability and consumer confidence will all play a role in determining whether the US economy can navigate this period of uncertainty without slipping into a downturn. The coming months will be critical in shaping the economic trajectory for the remainder of 2025 and beyond.

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