Reference News, August 6 — According to a report on the Fortune website on August 3, top economists warn that the United States is on the “edge of recession.”
The shocking employment report on the 1st is not the only red flag. Mark Zandi, Chief Economist at Moody’s Analytics, stated that various indicators over the past week paint a comprehensive picture of an economy headed for a downturn.
Despite showing resilience for months in the face of tariffs imposed by President Donald Trump, the U.S. economy now faces a suddenly gloomy outlook.
In a series of posts on social platform X on August 3, Zandi wrote: “The economy is on the edge of recession. This is the clear conclusion from last week’s economic data. Consumer spending has stalled, construction and manufacturing are contracting, and employment will decline. With inflation heating up, the Federal Reserve is unlikely to come to the rescue.”
Employment increased by only 73,000 last month, far below the forecast of around 100,000. Meanwhile, May’s figures were revised down from 144,000 to 19,000, and June’s total was sharply revised down from 147,000 to a mere 14,000. This implies that the average increase over the past three months was only 35,000.
Although Trump claimed without evidence that the employment data was “manipulated” and fired the head of the agency that compiled the report, Zandi pointed out that significant data revisions often coincide with economic turning points, such as recessions.
Other reports also signaled warnings. While second-quarter GDP rebounded more strongly than expected, indicators excluding foreign trade impacts and focusing on final domestic demand show the economy is slowing.
The personal consumption expenditures report showed core inflation accelerating to 2.8%, further above the Federal Reserve’s 2% target. June’s consumer spending growth also fell short of expectations. Fed policymakers delayed interest rate cuts as they assessed how much tariffs are impacting inflation.
Meanwhile, construction spending continued to decline in June due to a sharp drop in single-family homebuilding. The Institute for Supply Management’s manufacturing activity index for July fell, indicating accelerated contraction in the sector.
Currently, the Atlanta Fed’s GDP tracking data suggests the economy will continue growing, though third-quarter growth is projected to slow to 2.1% from 3% in Q2.
Businesses show no signs of large-scale layoffs, and the unemployment rate has barely changed, fluctuating within a narrow range of 4% to 4.2% for over a year.
But Zandi noted that low unemployment persists only because the labor force size remains unchanged. At the same time, foreign-born labor has decreased by 1.2 million over the past six months due to Trump’s restrictive immigration policies, and the overall labor force participation rate has also declined.
As labor supply shrinks, demand is weakening too. Zandi pointed out that “hiring freezes are spreading across the economy, especially for new graduates.” As a result, the level of so-called neutral employment growth needed to absorb new workers and stabilize unemployment is now much lower.
Zandi added: “The reason for the economy’s troubles is no mystery — blame America’s growing tariffs and highly restrictive immigration policies. Tariffs are increasingly eroding U.S. corporate profits and household purchasing power. Fewer immigrant workers mean a smaller economy.”
On August 1, economists at JPMorgan Chase similarly warned of a potential economic slump. They noted that employment data shows private-sector hiring averaged just 52,000 over the past three months, with stagnation outside healthcare and education.
They explained that this, combined with no signs of a tariff-driven surge in involuntary departures, strongly signals that businesses’ demand for labor has cooled.
JPMorgan added: “We’ve long emphasized that such a significant drop in labor demand is a recession warning sign. Businesses typically maintain hiring during what they perceive as temporary slowdowns. When labor demand falls alongside slowing growth, it’s usually a precursor to contraction.”