There have been ongoing concerns and confusion about the future of the economy and, therefore, commercial real estate. Earlier talk of a likely soft landing has morphed into extensive uncertainty.
That has extended into three categories of market activities that suggest a growing possibility of a recession later this year. Not a promise and not necessarily a probability greater than 50%, but enough to be concerned. Moody’s Analytics told ABC News that it had raised the probability of a recession to 35%, Goldman Sachs increased its projection from 15% to 20%, according to Reuters, while JPMorgan Chase raised its probability from 30% at the year’s start to 40%.
The first category is consumer finances, the group that drives 69% of GDP. In the February 2025 Federal Reserve Bank of New York’s Survey of Consumer Expectations, the credit access survey found that 46.7% of those surveyed expect it to be harder to obtain credit a year from now. That’s the highest level since June 2024.
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In the previous 12 months through February, there was a 21.5% rejection rate among credit applicants. The percentage of respondents who didn’t apply for credit because they thought they wouldn't be able to get it reached 8.5% — the highest level since the survey started in October 2013. Only 62.7% of households said that in the face of an unexpected $2,000 expense, they could come up with that amount. That’s an all-time series low. Also, household debt is at an all-time high of more than $18 trillion, according to the New York Fed.
Cost expectations are also up, with 43.6% forecasting inflation of more than 4% in a year and 41.4% expecting the category to exceed 4% in three years. Another 22.2% expected inflation between 2% and 4% in a year and 19.3% in three years.
The next category is corporate earnings. Last week, the S&P 500, Dow Jones Industrials, and Nasdaq 100 indexes all fell on “weaker-than-expected corporate earnings reports,” as reported by Nasdaq. FedEx, considered a business barometer, was down more than 10% when it cut its earnings outlook. Nike was down more than 7%. Walmart and Target have both cut their guidance for the year, according to Business Insider.
And David Rosenberg, chief economist and strategist of Rosenberg Research, said that about 70% of companies that reported earnings so far this season noted that one reason for a negative outlook would be uncertainty around Trump’s policies and tariff plans.
Third is the bond market. The 10-year Treasury Note yield has been roughly trending up again in March.
"We've had a couple of quarters now where spreads were stuck at the very low end of the historical range," Lotfi Karoui, a chief credit strategist at Goldman Sachs Research, said in a Walker & Dunlop podcast last week, according to Business Insider. "They should gradually go back to levels that are closer to historical medians, to reflect the new reality of elevated macro volatility and incrementally higher recession risk." Karoui did note that spreads were still far from recessionary levels.
“There is no playbook basically for the current cycle. It’s unique in so many aspects that I’d be careful sort of not extrapolating too much,” Karoui said.
But then, a Moody’s analysis said that U.S. firms had a 9.2% chance of defaulting at the end of 2024, as Bloomberg reported. That’s the highest default risk since the Great Financial Crisis.
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