August 6, 2025

The US economy is showing troubling signs that it may be headed toward a recession, according to Mark Zandi, chief economist at Moody's Analytics. In a recent analysis, Zandi highlighted a variety of economic indicators that suggest the US is edging closer to challenging financial times. Among these indicators, stagnating consumer spending stands out as a primary concern, alongside notable declines in the labor market and key industrial sectors. Consumer spending is critical as it accounts for approximately two-thirds of the US economic output. Despite traditionally being a strong pillar of the economy, reports indicate that consumer spending has flatlined recently, raising alarms among economists and financial observers. To illustrate the gravity of the situation, Zandi remarked that "economic activity is stalling," and emphasized that the declining labor force participation rate is a contributing factor to this stagnation. Compounding matters, experts report that even the construction and manufacturing sectors are experiencing significant contraction. Zandi's analysis underscores that while unemployment rates remain low, they may not tell the full story. Behind these statistics lies a more complex situation where workers face reduced hours and challenges finding employment, particularly recent graduates. The challenge of hiring persists, with many organizations instituting hiring freezes amid waning demand for labor—a potential indicator that employers are preparing for tougher economic conditions. Additionally, a decrease in the number of foreign-born workers entering the labor market due to stringent immigration policies has further tightened the workforce supply. The economic landscape is also affected by tariffs that Zandi warns are eroding corporate profit margins and household purchasing power. With an increasingly smaller workforce, the economy's growth capacity is being impeded, which could create broader issues. Concerns regarding the reliability of job growth data have emerged, with Zandi suggesting that significant revisions to employment figures often indicate potential shifts during economic turning points. For instance, the job growth reported for July was a mere 73,000, well below the anticipated 115,000. Revisions made to employment figures from earlier months revealed a drastic loss of positions, with May's original job growth estimate revised down to just 19,000, the most significant downward adjustment since March 2021. Meanwhile, the Federal Reserve has been cautious in its approach, opting to maintain interest rates during its fifth consecutive meeting. President Trump’s pressure to reduce borrowing costs has not swayed Fed Chair Jerome Powell, who emphasized the importance of managing inflation while supporting employment. Despite some indicators seeming stable, Powell acknowledged lingering uncertainties and remarked, “the economy is in a solid position, but uncertainty remains elevated.” Despite the approaching storm clouds, recent data from prediction market platform Kalshi shows that the probability of a US recession has dropped to 14%, down from nearly 70% earlier in the year. While sentiment shifts may offer some hope, it cannot overshadow the risks cited by Zandi and other economists. In light of the evolving economic situation, important questions remain. Is the US in a recession now? While there is no official declaration, varying economic indicators point toward a possible recession. The Federal Reserve is monitoring the situation closely, holding steady on interest rates while keeping an eye on inflation and economic growth. As uncertainty clouds the horizon, both consumers and industry stakeholders must navigate this complex landscape with caution.

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Tags: Us economy, Recession, Consumer spending, Employment, Federal reserve,