Moody's Economist Warns of Imminent U.S. Recession Amid Economic Indicators

Recent economic data suggests the U.S. economy is approaching a recession, according to Mark Zandi, Chief Economist at Moody's Analytics. Zandi highlighted that consumer spending has stagnated, construction and manufacturing sectors are contracting, and employment is poised to decline. He noted that with rising inflation, it will be challenging for the Federal Reserve to intervene effectively.

The latest jobs report revealed that payrolls grew by only 73,000 last month, falling short of the anticipated 100,000. Additionally, May's employment figures were revised down from 144,000 to 19,000, and June's from 147,000 to 14,000, resulting in an average gain of just 35,000 jobs over the past three months. Zandi pointed out that such significant revisions often occur when the economy is at a turning point, such as entering a recession.

Other economic indicators also raise concerns. The personal consumption expenditures report showed core inflation accelerating to 2.8%, surpassing the Federal Reserve's 2% target, while consumer spending increased less than expected in June. Construction spending continued to decline amid a sharp drop in single-family home projects, and the Institute for Supply Management's manufacturing activity index for July indicated a faster contraction in the sector.

Despite these warning signs, the Atlanta Federal Reserve's GDP tracker suggests continued growth, albeit at a slower pace, projecting a deceleration to 2.1% in the third quarter from 3% in the second quarter. The unemployment rate has remained relatively stable, fluctuating between 4% and 4.2% over the past year. However, Zandi cautioned that the low unemployment rate is partly due to a stagnant labor force, with the foreign-born workforce decreasing by 1.2 million in the last six months amid stricter immigration policies.

Zandi attributed the economic struggles to increasing U.S. tariffs and restrictive immigration policies, stating that tariffs are significantly impacting American companies' profits and households' purchasing power, while a reduced immigrant workforce leads to a smaller economy. Economists at JPMorgan have also raised alarms, noting that private sector hiring has slowed to an average of just 52,000 jobs over the last three months, with sectors outside health and education stalling. They emphasized that such a decline in labor demand is a strong recession warning signal, as firms typically maintain hiring during temporary growth slowdowns, and a slide in labor demand often precedes broader economic retrenchment.