The US economy appears to be on the edge of a downturn, according to Moody’s Analytics chief economist Mark Zandi. The labor market is weakening, consumer spending is flat, and construction and manufacturing are shrinking. With inflation still above its target, the Federal Reserve will struggle to revive growth.
The recent jobs report showed payrolls growing by just 73,000 last month, below forecasts of around 100,000. This is a significant drop from previous months, with May’s total revised down from 144,000 to 19,000 and June’s total slashed from 147,000 to just 14,000. The average gain over the past three months is now only 35,000.
Zandi noted that this trend is not unusual when the economy is at an inflection point, such as a recession. He warned that data often gets revised downwards in these situations. Other reports have also raised concerns, including a GDP rebounding more robustly than expected in the second quarter but a metric looking at final domestic demand indicating slowing.
The personal consumption expenditures report showed core inflation accelerating to 2.8%, further above the Fed’s 2% target. Consumer spending rose less than expected in June, and construction spending continued to decline in June amid a sharp drop in single-family homes. The manufacturing activity index for July dipped, indicating the sector contracted at a quicker pace.
Zandi attributed the economic struggles to increasing US tariffs and restrictive immigration policy. He pointed out that the tariffs are cutting into American companies’ profits and households’ purchasing power, while fewer immigrant workers mean a smaller economy.
Other economists have also sounded the alarm on a potential downturn. JPMorgan noted that jobs data show hiring in the private sector has cooled to an average of just 52,000 over the last three months, with sectors outside health and education stalling. They warned that a slide in labor demand of this magnitude is a recession warning signal.
The Atlanta Fed’s GDP tracker still points to continued growth, but it’s expected to decelerate to 2.1% in the third quarter from 3% in the second quarter. Despite no signs of mass layoffs, the unemployment rate has barely changed and remains within a tight range. However, Zandi noted that this is due to stagnant labor force participation rates rather than an actual decline in joblessness.
Source: https://fortune.com/2025/08/03/economic-outlook-recession-warning-zandi-jobs-report-fed-rate-cuts