Moody’s Analytics chief economist Mark Zandi is warning that the U.S. economy may be on the verge of a downturn. Over the past week, economic indicators have shown troubling signs: a weakening labor market, stagnant consumer spending, and contracting construction and manufacturing activity. With inflation still above target, Zandi cautioned that the Federal Reserve may have little room to step in and stimulate growth.
“The economy is on the precipice of recession. That’s the clear takeaway from last week’s economic data dump,” Zandi wrote in a series of posts on X. “Consumer spending has flatlined, construction and manufacturing are contracting, and employment is set to fall. And with inflation on the rise, it is tough for the Fed to come to the rescue.”
The latest jobs report underscored those concerns. Payrolls rose by just 73,000 in July, far below expectations of about 100,000. In addition, previous estimates were sharply revised downward—May’s numbers fell from 144,000 to 19,000, and June’s from 147,000 to just 14,000—bringing the three-month average gain to only 35,000.
While President Donald Trump has claimed without evidence that the jobs data was “rigged” and dismissed the head of the reporting agency, Zandi noted that large revisions are common when the economy is at a turning point, such as the start of a recession.
Other reports reinforced the grim outlook. GDP showed a stronger-than-expected rebound in the second quarter, but a measure that focuses on final domestic demand—removing the effects of foreign trade—signaled a slowdown. Core inflation, as measured by the personal consumption expenditures report, climbed to 2.8%, above the Fed’s 2% target, while consumer spending in June rose less than anticipated. The Fed has held off on rate cuts as it assesses how tariffs may affect inflation.
Construction spending fell again in June, driven by a sharp decline in single-family housing. The Institute for Supply Management’s July manufacturing index also showed the sector contracting at a faster pace.
The Atlanta Fed’s GDP tracker still points to growth, but it is expected to slow to 2.1% in the third quarter from 3% in the previous quarter. There have been no signs of widespread layoffs, and the unemployment rate has remained between 4% and 4.2% for more than a year.
However, Zandi said the unemployment rate is being kept low partly because the labor force has stagnated. The number of foreign-born workers has dropped by 1.2 million in the past six months amid the administration’s immigration crackdown, and overall labor force participation has slipped.
According to Zandi, both labor supply and demand are weakening, with an “economy-wide hiring freeze, particularly for recent graduates.” He explained that the neutral job gain level—needed to absorb new workers and keep unemployment steady—is now significantly lower.
“It’s no mystery why the economy is struggling; blame increasing U.S. tariffs and highly restrictive immigration policy,” he said. “The tariffs are cutting increasingly deeply into the profits of American companies and the purchasing power of American households. Fewer immigrant workers means a smaller economy.”
Economists at JPMorgan also warned on Friday that hiring trends point toward a possible recession. They noted that private-sector job growth has averaged just 52,000 over the past three months, with gains outside of health and education sectors largely stalling.
They concluded that this drop in labor demand is a strong warning signal. “Firms normally maintain hiring gains through growth downshifts they perceive as transitory. In episodes when labor demand slides with a growth downshift, it is often a precursor to retrenchment,” JPMorgan said.
