S&P projects consumers to slow spending, 25% chance of recession

A top credit-rating agency said Wednesday it expects American consumers to reduce spending and that a recession was a possibility.

Uncertainty over President Donald Trump’s plans for tariffs persists as the president works with top staff members on a plan to roll out reciprocal tariffs on nations that tax U.S. imports. Trump plans to announce the reciprocal tariffs on April 2, which he has taken to calling “Liberation Day.” 

S&P Global said U.S. consumers could soon slow spending.

“We think Americans will soon pull back on purchases, dealing a blow to the world’s biggest economy, which is largely fueled by consumer spending,” the credit-rating agency said.

S&P also said a recession was possible in the next year.

“We see a 25% probability of a U.S. recession starting in the next 12 months, although our base case is for a slowdown to below-trend growth,” according to the S&P report. “The prospect of tariff-fueled inflation is also muddying the waters for Fed monetary policy. We now forecast one rate cut late in the year, as demand weakness outweighs inflationary pressures.”

David Tesher, S&P Global Ratings’ head of North America Credit Research, said all eyes remain on Trump’s tariff plans.

“Higher tariffs are a top concern for many corporate borrowers we rate, given they would likely lift input prices at a time when companies are grappling with already-elevated costs and a diminished ability to pass them through to customers and consumers,” he said. “Key U.S. sectors to watch include autos, metals and mining, tech, oil and gas, capital goods, chemicals, consumer products and retail, pharma and health care, and utilities and power.”

Business groups, including the U.S. Chamber of Commerce and American Farm Bureau Federation, have urged Trump to back off tariff threats.

Trump has promised that his tariffs would shift the tax burden away from Americans and onto foreign countries, but tariffs are generally paid by the people who import the products. Those importers then have a choice: absorb the loss or pass it on to consumers through higher prices. He also promised tariffs would make America “rich as hell.” Trump has also used tariffs as a negotiating tactic to tighten border security.

Tariffs are taxes charged on imported products. The company importing the products pays the tariffs and can either try to absorb the loss or pass the additional costs on to consumers.