Is a 2025 Recession Coming? (5 Economic Signals Smart Investors Shouldn’t Ignore)

Is the U.S. Heading Toward Recession? What the Latest Data Tells Us

Pinnacle Wealth Review Sept 2025.pdf

I’ve always respected the work of Moody’s and chief economist Mark Zandi. They cut through noise and look at the numbers that matter. Right now, their model says there’s a 48% chance the U.S. economy tips into recession within the next year. That’s not quite over the 50% mark, but it’s close enough that economists are calling the risk “uncomfortably high.” And history tells us that when we get this close, it often signals tougher times ahead.

So what are the signals we should be watching?

Housing as a Leading Indicator

In August, housing construction slowed more than expected. Fewer new homes were started, and permits for future projects dropped to the lowest level since 2020. That’s important because housing is a leading indicator. Builders pull back when they see higher costs, weaker demand, or both.

It wasn’t all negative-there was growth in the West and Northeast-but the South and Midwest fell off sharply. Think of it this way: when housing cools, it often tells us where the broader economy is heading next.

Key takeaway: While the economy is still on pace for roughly 2.2% growth in Q3, housing suggests caution.

Consumer Spending Trends

Now let’s look at the spending side. This chart tracks U.S. consumer spending in 2025 compared to the year before:

•    At the start of the year, spending jumped up and down sharply.

•    In April, right after “Liberation Day,” households pulled purchases forward to beat new tariffs.

•    After that, spending fell because people had already stocked up.

•    By summer, spending normalized, but by August growth slowed again.

This is a clear reminder that big policy shifts-tariffs, new laws, or major events-change how people spend. When households rush to buy ahead of time, it creates spikes followed by slowdowns. Businesses that don’t plan for these swings often find themselves surprised by a sudden drop in demand.

Key takeaway: Consumer spending is still growing, but only about 1.3% in Q3, showing households are more cautious.

What This Means for Business Owners and Investors

The economy isn’t in recession today, but risk is elevated. If you’re running a business, this is the time to:

•    Stress-test your cash flow: Could you weather a few quarters of slower revenue?

•    Revisit your growth assumptions: Are you budgeting for steady demand, or do you have a margin of safety?

•    Look at your debt: Higher rates and weaker demand can squeeze leverage quickly.

•    Plan your “what if” scenarios: Just like planning a road trip, you don’t want to start driving to St. Louis without a map.

This is what I’ve done for over 30 years-help business owners and families model these scenarios before they become reality. We can’t control the economic cycle, but we can control how prepared we are.