Economic Headwinds Intensify as Recession Concerns Mount, Warns Apollo's Torsten Slok

The U.S. labor market delivered a mixed signal in February, adding 151,000 nonfarm positions—falling short of the anticipated 160,000 increase. Yet beneath this headline figure lies a more troubling narrative, one that Torsten Slok, Chief Economist at Apollo, believes warrants serious concern about the economy’s near-term trajectory.

The Soft Data Disconnect

“The soft data going into today’s number has been deteriorating, both when it comes to consumer confidence and corporate confidence,” Slok told CNBC. The disconnect between strong employment numbers and weakening sentiment metrics is striking. Capital expenditure plans tracked across regional Federal Reserve districts are beginning to contract, signaling that both businesses and households are growing increasingly cautious about future economic prospects.

This caution is reflected in broader market movements. The Magnificent 7 stocks experienced a significant pullback, with NVIDIA leading declines. The VIX volatility index climbed above 20, historically a threshold suggesting heightened market unease and defensive positioning by investors.

Trade Policy Creates Economic Uncertainty

The Trump administration’s tariff regime has become the primary catalyst for this uncertainty. Tariffs now apply to goods accounting for 44% of total U.S. imports, including auto shipments—though automotive exemptions expire on April 2nd. The immediate consequences are already visible in the data.

The January trade deficit expanded to $131.4 billion, the widest reading on record. More remarkably, the month-to-month deterioration in the trade balance reached $37 billion—more than double any single-month swing over the past five decades. Companies are frantically importing ahead of potential tariff escalations, with industrial supplies imports surging 34%.

The Atlanta Fed now projects first-quarter GDP growth of negative 1.5%, a stark reversal from earlier expectations. Economists polled by Reuters expressed deep apprehension about recession probabilities, noting that the rapidly shifting policy environment makes forecasting nearly impossible. As Jonathan Millar, senior U.S. economist at Barclays, observed: “The risk of a recession has intensified. People are pushing off spending, which feeds through to economic drag.”

Federal Employment Cuts and Sentiment Spillovers

Beyond trade policy, Slok highlights another risk vector: federal workforce reductions. Approximately 3 million direct federal employees exist alongside 6 million private contractors dependent on federal contracts—a combined 9 million workers representing 5.6% of the U.S. workforce. While direct job losses could be manageable, the psychological impact may prove decisive.

“The real fear,” Slok explains, “is that sentiment effects spread, causing households to pull back on spending and corporations to become reluctant to hire amid extreme uncertainty.” This behavioral feedback loop represents the true recession risk, where weakness becomes self-reinforcing.

Inflation Pressures Escalate

Tariff-induced price pressures are adding to inflationary headwinds. Wells Fargo research indicates consumers are rapidly adjusting expectations upward in response to tariff announcements. Service sector firms surveyed by the New York Fed now expect 4.0% inflation over the next 12 months (up 1.0 percentage point annually), while manufacturing firms forecast 3.5% (up 0.5 percentage points).

Investment Pullback Evident Across Sectors

Business investment is already contracting under uncertainty. M&A activity in January and February reached its lowest level since the 2008-2009 financial crisis, according to Charles Schwab data. Tariffs received record mentions during recent earnings calls—exceeding even the 2018 trade war frequency, noted chief investment strategist Liz Ann Sonders.

The biotech sector exemplifies this pullback. Smaller biotech firms dependent on acquisition by larger competitors face a shrinking exit pathway. The Nasdaq Biotech Index has declined more than 9% from last autumn’s peaks as dealmaking activity stalls.

The Path Forward

February’s jobs report provided little reassurance. Trade volatility and fiscal uncertainties continue spreading apprehension throughout the business community. According to Wells Fargo’s assessment, “the only certainty on tariffs is uncertainty”—a sentiment Torsten Slok’s analysis reinforces. The convergence of employment caution, policy unpredictability, and deteriorating business confidence suggests the recession risk framework warrants serious consideration among market participants.