US Economy Faces Recession Risk Amidst Stagnation Signs
New York, Tuesday, 5 August 2025.
Economist Mark Zandi warns of a potential US recession due to stagnant consumer spending, construction, and manufacturing, compounded by job market strains and restrictive policies.
Economic Stagnation Indicators
The US economy is showing alarming signs of stagnation, as highlighted by Mark Zandi, the chief economist at Moody’s Analytics. Key sectors such as consumer spending, construction, and manufacturing have all shown significant signs of contraction. Zandi emphasizes that stagnant consumer spending coupled with reduced construction and manufacturing activities serve as clear indicators of a potential recession [1][2].
Labor Market and Policy Influence
In addition to stagnation in crucial economic sectors, the labor market is experiencing strains with job numbers falling short of expectations. The recent job report revealed that only 73,000 jobs were added in July 2025, significantly below the forecast of 100,000 jobs. The revisions for the previous months were even more drastic, with May and June job figures being reduced drastically. This situation is exacerbated by restrictive immigration policies that have resulted in a declining foreign-born workforce by 1.2 million, further contributing to labor market stagnation [2][3].
Federal Reserve’s Position and Stagflation Concerns
The Federal Reserve’s current stance of maintaining interest rates amidst conflicting economic signals adds another layer of complexity to the current economic scenario. While the unemployment rate has remained stable between 4% and 4.2%, underlying issues such as a broad hiring freeze and low workforce participation rates persist. Core inflation rose to 2.8% as of June 2025, exceeding the Federal Reserve’s target, which poses challenges for policymakers. The fear of stagflation is making rounds, as rigid policies and high tariffs stress economic output and corporate profitability [2][3][4].
Strategic Policy Adjustments
Zandi’s analysis suggests that current economic policies, particularly tariffs, are eroding corporate profits and impacting household purchasing power. The necessity for strategic adjustments in policy is paramount to avert a full-blown recession. Policymakers are encouraged to reconsider tariffs and immigration policies to rejuvenate economic growth and prevent further deterioration amidst looming recession threats [1][2][3].