And CBO\u2019s January\u00a0 projection:<\/p>\n
Here\u2019s implied GDP using the Budget Lab\u2019s analysis, and the CBO\u2019s current law projection:<\/p>\n
Figure 1:<\/strong> GDP (bold black), CBO January 2025 projection (blue), and Budget Lab reciprocal tariffs with retaliation GDP (tan), and GDPNow of 2\/19 (red square). Source: BEA 2024Q4 advance release, CBO Budget and Economic Outlook, Atlanta Fed, Budget Lab<\/a>, and author\u2019s calculations.<\/em><\/p>\n Since the NBER Business Cycle Dating Committee does not rely primarily on GDP as an indicator of whether the US economy is recession, I eschew the two-consecutive-quarter growth in GDP rule of thumb, and look to nonfarm payroll employment.<\/p>\n I translate (log) GDP to (log) NFP using the observed relationship 2022Q4-24Q4, where a one percent increase in GDP results in an about 0.5 percent increase in NFP (Adj-R2 = 0.99, DW = 1.75):<\/p>\n Figure 2:<\/strong> Nonfarm payroll employment (bold black), CBO January 2025 projection (blue), and Budget Lab reciprocal tariffs with retaliation NFP (tan), Source: BLS December 2024 release (for consistency with CBO projection), CBO Budget and Economic Outlook, Budget Lab<\/a>, and author\u2019s calculations.<\/em><\/p>\n This outcome suggests a recession starting in 2025Q4, with the business cycle peak at 2025Q3, although a starting date of 2025Q2 is plausible. Note the analysis does not include the likely depressing impact of economic and trade policy uncertainty on economic activity (see Steven Kamin\u2019s analysis<\/a>).<\/p>\n Does a recession seem a near impossibility, given the recent strength in almost all indicators? I\u2019ll just note both the 10yr-3mo and 10yr-2yr seem close to inverting again. Not sure what that means, given the failure of a recession to show up after the last inversion, but here they are.<\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2025\/02\/reciprocaltariff_retal_gdp.png\")
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