US Recession Has Begun (Uncut) 03-25-2025

US Recession Has Begun: Layoffs Rising, Credit Cracking & No One Is Ready | Danielle DiMartino Booth

While the mainstream media remains focused on inflation in so-called soft landing narratives, the underlying data tells a very different story. U.S. consumer confidence has plummeted to its lowest level since February of 2021, according to the Conference Board. And the Conference Board’s leading economic index has now declined for 20 plus months straight.

Historically, this kind of prolonged drop has always preceded a recession. In February 2025, it fell again down 1% over the last six months, yet Fed Chair Jerome Powell tells us that the economy is still, quote, strong overall, despite trimming the U.S. GDP forecast to just 1.7% this year, the slowest pace, by the way, outside the COVID era since 2011. Now, according to my next guest, the U.S. is already deep in a private sector recession.

She warns the inflation narrative is a distraction. The real economy is being hit by falling margins. We got job cuts, tightening credit and, of course, weakening demand.

Here to discuss the real risks and warn us what the Fed could be failing the U.S. economy right now is Danielle DiMartino Booth. Danielle is the CEO, of course, and the Chief Strategist at QI Research, which I highly recommend, by the way. Great to see you, Danielle.

Thanks for joining us. Thank you for having me again today. It’s great to be here.

OK, well, we’ve got lots to get into, including this recession talk. The latest Deutsche Bank survey is warning the odds of a U.S. recession are basically a toying cost, 50-50 here. Out of 400 respondents surveyed between March 17th and the 20th, the average estimate puts the chance of an economic downturn in the next 12 months to 43%.

And in the meantime, bond expert Jeffrey Gundlach at Double Line Capital told CNBC he now puts the odds of a recession at 50 to 60%. Morgan Stanley is pointing to the recent market correction and warning that a, quote, uncertainty shocked, fueled by unpredictable trade policy, could tip the economy into a slowdown or even worse. So, Danielle, what’s your take on the U.S. economy right now? Let’s talk about it.

Well, my take is that by the time you start to hear the sell side come out and make these predictions, historically speaking, we’ve actually already been in recession. And that’s my greater concern right now. We have seen a continued string of downward revisions to payrolls, in 2024, throughout the year of 2024.

It’s looking like job losses did indeed begin last year. The private sector is showing no signs of abating in terms of continuing to cut headcount. And the word has definitely trickled all the way down from the C-suite to Main Street.

I know that there’s a lot of focus right now on the Consumer Confidence Survey, but by golly, we saw 66% of Americans in the latest University of Michigan survey come out and say, we see a rising unemployment rate in the next 12 months. That’s 66%. We’ve never been past the 60% mark without already being in recession.

That’s a past tense historical reference in data back to 1968. Yeah, yeah. And talk a little bit about these red flags that you’re noticing in the first quarter of this year, particularly that C-suite that you’re talking about.

I mean, what’s your outlook for the rest of the year and what does it mean for earnings? So we’re seeing a dramatic pullback in CEO confidence. So that’s yet another signpost. We had a burst of optimism right after the election into December.

And the reversals that we’re seeing from kind of these December high points until these March readings is absolutely unprecedented. We’ve never seen these kinds of pullbacks. And we looked back to the full history in some of these readings.

And the reversal is really, really breathtaking. Challenger Grand Christmas, they’ve been a little bit behind in being able to track layoffs. But in the month of February, it seems like they played a mean game of catch up, tallying 172,000 layoffs, only 62,000 of those were in the public sector.

That’s what we were expecting, of course, given all the announcements that have come out of the new administration. But again, it was 172. That means the vast majority of layoffs are still occurring in the private sector, where full time employment, again, in the private sector peaked in April of 2022.

Wow. Well, OK, well, I mean, we’ve been talking about a little bit about the silent recession for a while, and we’re starting to see it in the private sector. What will the experience be like for the U.S.? How bad of a recession will it be? I mean, will it be tougher than the one we’re seeing now? Well, I think that the visibility of the recession will certainly be unwelcome and that that’s always going to be the case, right? I mean, Americans are pulling back on their plans for vacationing.

They’re eating out less. When you’re talking about discretionary spending on the goods and the services side coming down, these are lifestyles. These are lifestyles that are going through dramatic changes.

And when you’re not able to splurge and take the family out to dinner once a week or go to the movies or whatever it is that is in recreation spending where we’re seeing serious declines, you know, that is something that nobody appreciates. You don’t want to have to change your lifestyle and start to play board games instead of going out, start to do staycations instead of going to Disney, whatever it may be. But something is happening in the U.S. economy when traffic into and out of Las Vegas is down 1.1 percent on a year-over-year basis.

Yeah. Yeah. I’m curious what it’s all going to mean for the stock markets, too.

I mean, if we’re just starting to see this now in Q1, what’s that going to mean? I mean, the mag seven have a little bit of a snapback here. Well, they certainly have. And there is there’s hope right now that the tariffs aren’t going to be as onerous as what was originally envisioned.

You know, the Congress has all of three weeks to come up with some legislation before they break for Easter. You know, what might or might not come out of the Department of Government Efficiency in the longer term? Are the tax cuts going to start to benefit? So there is a little mini burst of confidence right now. But again, that’s not what we’re seeing when it comes to bankruptcies and layoff announcements and consumer confidence on the ground.

Yeah. Yeah. You mentioned corporate bankruptcies there and you pointed out that since January, we’ve seen an average of about 16 large firm filings per month.

That’s nearly double the pre pandemic average. Daniel, like what’s driving this wave of corporate distress? Well, in these types of environments, right, we’ve only seen four rate cuts out of the Fed. This is not what the banking sector was anticipating.

This is not what was being penciled in. So now you’re seeing the rubber meet the road. And that means that financing is increasingly difficult to come by.

That manifests in rising bankruptcies and that manifests in companies continuing to cut costs. So I think how this is going to end up looking for the stock market is going to be fairly visible pretty soon here because it’s banks that come out of the gate initially and announce their earnings and we’re coming to the very end of the current quarter. And I think we’re going to see a continuation of, boy, those charge offs are higher than they thought than we thought they were going to be.

And that isn’t even reflecting what’s being extended and pretended. So in terms of whether you’re talking about commercial real estate, the housing market appears to be hitting a hard wall in the United States. Inventories are going up.

Prices have been beginning to come down. Home builders are reporting that they’re having to discount homes more than they had anticipated. And of course, the view from the C-suite, you know, Walmart, Dollar Tree, they’re saying Americans aren’t spending.

They’re certainly not spending on discretionary goods or services, by the way. And that really is the caboose, if you will, because we have seen Americans continue to spend on services and now we’re beginning to see that pull back as well. Yeah, the cracks are starting to show.

I mean, you’ve been doing this a long time and we’ve had you on. You’ve been incredibly accurate about what’s going to be taking place forward looking. You know, given all of this, the bankruptcies to consumer strain, what sectors or more specifically, I guess, indicators are you watching most closely for the confirmation of this deeper downturn ahead? So, you know, it’s expected that we see the pain that we’re seeing in consumer discretionary.

And that is indeed where we’re seeing a lot of these bankruptcies. I’m a little bit more focused right now on consumer staples, because when you have the head of Dollar Tree come out and say that American households are even pulling back on essentials spending, that’s going to manifest in consumer staples and Americans trading down to brands. We had a big meat packing company go out of business that took 1,500 layoffs with it as well.

When we start to see trading down, spending less, buying fewer brands, buying fewer packaged goods, you’re going to start to see a bleeding effect from what you would expect to see weakness in consumer discretionary weakness in the banks that filter all the way down to consumer staples. And that is indeed what we’re seeing. Yeah.

Yeah. It’s been fascinating to kind of watch that that jump up to with people kind of coming into the market, trying to buy things before the tariffs hit. That’s coming out of the market now.

Here’s what Powell had to say about the chances of a recession in the U.S. There’s always an unconditional probability possibility of a recession. It might be broadly in the range of one in four at any time. If you look back through the years, it could be within 12 months of one in four chance of a recession.

So the question is, whether this current situation, those possibilities are elevated. I will say this. We don’t make such a forecast.

If you look at outside forecasts, forecasters have generally raised, a number of them have raised their possibility of a recession somewhat, but still at relatively moderate levels, still in the region of the traditional because they were extremely low. If you go back two months, people were saying that the likelihood of a recession was extremely low. So has moved up, but it’s not high.

Of course, that’s the March presser after the Fed held rates steady. What’s your thoughts on his response? But more importantly, I mean, what stands out to you here? Well, again, you know, by time there is a roughly 30, 35 percent broadcasted chance of recession in the financial community, the US has tended to already be in recession. And that’s the part that Powell didn’t mention.

Maybe there was a Freudian slip there where he said probability instead of possibility when he first started to answer that question. But again, it’s not his job, nor in fact, is his responsibility to try and engender confidence in the outlook for the US economy. So he’s certainly not the person who’s allowed to recognize recession for what it is.

I think the unemployment rate is going to do that job for him in the coming months. It was interesting to see the bravado because there’s not just one, but two payroll reports that will be released prior to Powell being at the podium again. We have a very early release date, May the 2nd for April nonfarm payrolls.

And that, of course, is five days before the Fed next releases its statement on May the 7th. Yeah, I was reading your thesis. I want to get your opinion on what the Fed’s doing wrong at the moment, because, I mean, you got this outlook on why inflation might actually come down faster than many expect.

Explain that and kind of deep dive into it for us, if you will. Well, again, it’s what we’re hearing from companies on the ground, an inability to pass through increased costs. There’s been a lot of stockpiling in anticipation of potential tariffs that has raised the input prices for companies.

But companies are also saying we’re not able to pass these prices along. If you look at any of the regional Federal Reserve surveys, there’s a great big divide between prices paid and prices received. And that is a manifestation of a margin squeeze, not increased inflation.

And we’re seeing that in real-time inflation metrics that remain below the Fed’s 2 percent target. Yeah. You know, in March, the Federal Reserve revealed it ran an operating loss of $77.6 billion in 2024, marking the second year in a row of major financial losses for the U.S. Central Bank.

But these losses aren’t really a sign that the Fed’s in trouble and they don’t impact the ability to operate or to require a bailout from the Treasury. But they are a direct side effect of two major moves. First, the Fed pumped money into the economy during the pandemic, as of course, you know, and then in 2023 and 2023 or sorry, 2022 and 2023, it sharply raised interest rates to fight that inflation.

But the result is the Fed is now paying out more in interest, especially to commercial banks holding reserves more than it earns from its massive $6.8 trillion portfolio of T-bills and mortgage-backed securities. Let’s start with the How should we interpret this $77.6 billion loss? Is it something the public should be worried about? Can you break it down? Well, I mean, if you’re talking about actual dollars here, that’s a rounding error when it comes to when it comes to the operations of the federal government, $77 billion. I think optically, however, it is indicative of the fact that there needs to be a on the policy of paying interest on excess reserves.

Is that really necessary in this environment? And I would venture to say that the answer is no, this was a this was a policy that was implemented during times of emergency during times of financial crisis. And I think that we need to rethink and to go back and visit, revisit this policy of paying interest on excess reserves. Of course, that’s not something that I’ve been advocating for for a very long time.

Because, again, it was a construct and an outcome of the financial crisis were a bit beyond that moment in time right now in American history. Yeah, I wonder how much pressure this puts on the Fed to start cutting rates to running at a loss like this. Well, certainly if you’re talking about paper losses in terms of cutting, yes, mechanistically speaking, that is the case.

But I think more on the fundamental side is where you start talking about the need for the Fed to cut interest rates, because borrowing costs for Americans, for U.S. households, for working American men and women, borrowing costs are still prohibitively high, whether you’re talking about, you know, 15 percent car loan rate in many cases or credit card interest rates that are still upwards of 25, 26, 28 percent. So maybe for the biggest borrowers in corporate America, borrowing costs are not prohibitively high, monetary policy is not tight. But for the borrowers who spend the most and can afford the least, that policy is still very restrictive.

Yeah. Yeah. I’m curious.

I mean, how many rate cuts do you see the Fed doing this year? So I foresee about four or five rate cuts being pushed through this year. I think, again, the the unemployment rate when the February jobs data was released was just just a rounding error, hair shy of 4.2 percent. The Fed’s year end target for the unemployment rate is 4.2 percent, excuse me, 4.4 percent.

I don’t see us not getting there between now and again, the May 7th meeting, not given the pace at which we’re seeing layoffs pushed through the difference between 4.2 percent and 4.4 percent can happen very quickly. And again, not one, but two non-farm payer reports to come. Yeah.

OK, well, let’s talk a little bit about banking. I know you talked about it there. We’re keeping an eye on the sector.

We recently learned that the Massachusetts local bank has been deemed in trouble condition by a top federal regulator. The Office of Comptroller of the Currency says 42 North Private Bank based in Canton is no longer considered an eligible savings association that, according to a cease and desist order announced on Thursday. I want to get your take on the banking sector in general.

I mean, are there any warning signs other banks or customers should be watching for, you know, to avoid similar issues here, Danielle? Well, I think that there is something to be said for the fact that the Fed has indeed kept monetary policy, maintained their higher for longer stance than anybody was anticipating. That will filter through to commercial real estate transactions. And we are seeing an increase in transaction volumes in 2025.

The delinquency rates are still continuing to rise. We’ve seen upwards of 6000 store closing announcements so far in 2025. That’s going to have a ripple through effect on the commercial real estate sector.

The reason I’m harping on this in particular is because that’s a source of serious weakness throughout the U.S. banking system, especially with some of the midsize regional banks down into the smaller banks. And I think that that should be a focal point. I think what’s kind of amazing about talking about a one-off bank in Massachusetts that’s been closed is the fact that there have been so few bank closures since March of 2023, two years ago, with the blow up of Silicon Valley Bank.

I think regulators have a lot of work on their hands. And I applaud any effort to consolidate banking regulators, as has been suggested, because it’s basically a blueprint of part of the last chapter of the book that I wrote, meaning we’ve got too many cooks in the kitchen. U.S. taxpayers could save a lot of money if we were able to consolidate banking regulators, who would then have a better grasp of the overall banking system instead of having an SEC and an FDIC and a Fed and an OCC.

I think there’s serious room for consolidation and the application of technology in regulating the U.S. banking system. Yeah. I mean, you’re shocked a little bit, as am I, about taking so long.

Do you think that there will be major consolidation this year then? I think we’ll certainly see more consolidation than we saw in 2024. Price discovery is the ultimate cleansing agent. And as we start to see a lot of these commercial real estate loan books price out, especially if the Fed lowers rates as slowly as they have been, meaning the book losses for banks, treasury and mortgage-backed securities holdings are still prohibitively high.

So in that sense, I do think that we see more bank failures in 2025, unless, of course, there’s some executive order that’s coming out that prohibits that. We don’t know. Okay.

Interesting. I’m going to pivot here because we saw gold break above that new historic record of $3,000 an ounce. And there are many drivers involved, obviously from tariff fears, geopolitical uncertainty, and central banks around the world continuing to add gold to their reserves.

But recently, Mohamed El-Erian, the Queens College Cambridge president, told Bloomberg that gold has broken down all historic correlations. He further pointed out there’s something going on about the dollar internationally and that it is something that they take very seriously. How do you view what’s happening in the gold market at the moment? So I’m not possibly looking at it as as closely as Mohamed El-Erian is.

I still think that a lot of the buildup in the gold reserve is a reflection of geopolitical tensions. We’re seeing a trillion dollars of spending come out of Germany. And there is still major dislocation in the financial system.

We haven’t seen a working out of a lot of the bad debts. And the place to hide remains gold. And so I see that as I still see the underlying fundamentals for the gold trade as being well grounded.

And you just mentioned in your preamble to the question to me, sources of natural buying for gold. And for that to continue, if China was just to increase its gold reserves to that of any other developed nation, then you’re going to see a floor put underneath the gold price. But again, gold is your ultimate hedge.

And in times of the higher uncertainty is in general, and I think we’ve got acute uncertainty, whether you’re talking about trade policy or geopolitics right now or the global economy for that matter, the higher the uncertainty element, the higher the price of gold. And we’re certainly seeing that reflected. I’m not looking at it as complex in the same complexity as he is.

Yeah, no, well said. What about the gold movements across the pond here? We’re seeing all this gold being shifted over to the US. It seems to be telling a story.

Are you keeping an eye on that? I mean, what it signals? I mean, again, it truly is a reflection of, I mean, this is the safest of safe havens. If you’re going to park it somewhere, you’re going to park it where it’s going to be the safest. So maybe I’m being oversimplistic.

I hope I’m not. But the higher the degree of the potential for, as I say, this is my mantra. Maybe I’ll make it even simpler than this.

Currency war, trade war, cold war, hot war. The closer we get to the opposite end of the spectrum, the more you’re going to want to be sure that your gold is safe. And I think that that’s one of the reasons that people are flocking into gold mines as well.

Yeah. Yeah. The miners are definitely seeing it in the price action.

All right. Well, let’s unpack here. I appreciate it.

Danielle DiMartino Booth is the CEO and chief strategist at QI Research. Thanks for this. As always, I appreciate your time.

And thank you. Thanks, Danielle. Of course, if you found this conversation valuable, make sure to subscribe to Kitco News and turn on the alerts.

We bring you the data that matters and the voices that challenge the narrative. Thanks for watching. I’m Jeremy Savin.

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