Torsten Slok Warns of Mounting Recession Risks Amid Policy Uncertainty

Apollo’s Chief Economist Torsten Slok recently sounded the alarm on growing economic fragility in the U.S., citing a concerning disconnect between headline employment figures and deteriorating forward-looking indicators. Despite February’s addition of 151,000 nonfarm payrolls—a respectable number on its surface—the underlying narrative tells a far more troubling story about the direction of the American economy.

Employment Gains Mask Deeper Economic Fragility

The monthly jobs report came in slightly below analyst expectations of 160,000 positions, but the headline figure obscures what Slok and other economists view as the real issue: weakening consumer and business confidence. In a recent CNBC interview, Slok highlighted that soft data indicators have been deteriorating across both households and corporations, signaling that decision-makers are increasingly anxious about the economic outlook. “We’re seeing capital expenditure plans from the regional Federal Reserve districts beginning to flatten,” Slok noted, warning that deteriorating sentiment could trigger a self-reinforcing cycle of reduced spending and hiring.

This assessment aligns with broader market signals. The Magnificent 7 technology stocks experienced a significant decline last week, with NVIDIA leading the pullback. The VIX volatility index surged above 20, a historically cautious level that suggests investors are re-evaluating their risk exposure.

Trade Policy Creates Unprecedented Economic Shock

The primary driver of this heightened uncertainty stems from the Trump administration’s aggressive tariff agenda. The administration has imposed levies on goods originating from Canada, Mexico, and China covering 44% of all U.S. imports. While automotive products received a temporary exemption, that reprieve expires on April 2nd—a looming deadline that companies are urgently preparing for.

The initial economic impact has been staggering. Trade data revealed a $37 billion deterioration in the monthly trade balance, representing the largest swing in any single month over the past five decades. The Atlanta Federal Reserve has downgraded its first-quarter growth forecast to negative 1.5%—a stark reversal. January’s trade deficit reached $131.4 billion, the highest level on record, as firms engaged in frantic inventory building ahead of tariff escalation. Industrial supply imports surged 34% as companies attempted to stockpile materials.

Economists are struggling to model the economic impact given the rapidly shifting policy landscape. Jonathan Millar, a senior economist at Barclays, told Reuters that the fundamental challenge lies in continuous uncertainty: “New announcements arrive with such frequency that forecasting becomes nearly impossible. The recession risk has clearly intensified. Companies and households are deferring expenditures, which directly suppresses growth. We face simultaneous risks: elevated inflation alongside potential economic contraction.”

The Sentiment Spiral: When Uncertainty Becomes Self-Fulfilling

Torsten Slok has emphasized another critical dimension: the psychological impact of policy turbulence. The federal government directly employs approximately 3 million people, with an additional 6 million contractors, meaning roughly 9 million Americans—representing 5.6% of the total workforce—depend on federal spending. While direct job losses from belt-tightening might be initially contained, Slok warns the true danger lies in the ripple effect across consumer and business psychology.

“People may begin pulling back on household spending,” Slok explained, “and corporations might simultaneously reduce hiring due to elevated uncertainty. This sentiment-driven contraction could accelerate faster than traditional economic models would predict.” This psychology-driven scenario represents what Slok identifies as the gravest recession risk: a cascading loss of confidence that becomes increasingly difficult to reverse.

Inflation and Investment: A Double Threat

Tariffs simultaneously create upward pressure on prices. Wells Fargo reports that short-term inflation expectations are recalibrating throughout the economy as both consumers and businesses respond to tariff-driven cost pressures. The New York Federal Reserve documented a notable shift: year-ahead inflation expectations among service sector firms climbed to 4.0% in February (a 1.0 percentage point increase from the prior year), while manufacturing firms raised expectations to 3.5% (up 0.5 percentage points).

This inflation pressure is already dampening business investment. Mergers and acquisitions activity during the first two months of 2025 hit its lowest level since the 2008-09 financial crisis. Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, notes that corporate earnings calls have featured an unprecedented frequency of tariff mentions—exceeding even the peak discussions during the 2018 trade conflict.

The biotech sector exemplifies this pullback. Smaller biotechnology firms typically depend on acquisition by larger players to fund operations and growth, but the Nasdaq Biotech Index (NBI) has declined over 9% from its autumn highs as dealmaking activity has stalled. This M&A slowdown represents a crucial warning signal about business sector confidence.

The Road Ahead: Compounding Uncertainties

Torsten Slok’s analysis captures a broader economic vulnerability: the U.S. faces not one isolated risk but multiple reinforcing headwinds. Trade policy volatility creates immediate inflationary pressure while simultaneously triggering psychological pullback in spending and investment. The sentiment effect could amplify each of these challenges. As Wells Fargo observed, the defining characteristic of the current environment is “the only certainty on tariffs is uncertainty itself.”

The February employment report failed to dispel mounting concern about the trajectory of the economy. Unless policy direction clarifies, the conditions that concern analysts like Slok—deteriorating confidence, reduced business investment, and spreading caution across the consumer and corporate sectors—could establish the foundation for the very recession risks now dominating discussion.