Indicator after indicator—retail sales, industrial production—point to a speedy slowdown of the U.S. economy, as we noted earlier this week. Trade & Manufacturing Factory orders sank 4.8%, the worst read since January of 2024. The Conference Board’s employment trends index dropped to its lowest point since October 2024 in July. This downturn marks a new and troubling chapter in the economic narrative.
The July jobs report may have poured more concrete on the idea that the U.S. economic engine is sputtering. In the first quarter, economic growth fell by 0.5%, fueled by a surge in imports, which negatively impacted the gross domestic product (GDP) calculation. As these numbers continue to grow, analysts are increasingly alarmed by what these figures could mean. Their concerns are compounded by the continued instability in the markets.
That’s why I was somewhat alarmed by the recent economic data, according to George Mateyo, Chief Investment Officer at Key Private Bank. He indicated that the reports confirm suspicions of an impending slowdown, stating, “This confirmed a lot of our suspicions. Frankly, we were waiting for the other shoe to drop, and now we’re starting to see a few shoes drop.”
The Dow Jones Industrial Average has reflected this uncertainty by sinking 1.7% in the last month. This plummet occurs as traders are issued amid an intensely fickle trading environment. Luke Tilley, chief economist for Wilmington Trust, made a pretty scary forecast recently. He now thinks that odds of the U.S. falling into a recession have soared to 50%. He noted that pressure from tariffs is one contributing factor to the subdued inflation levels, stating, “We are in a broad economic slowdown. Whether it translates to a recession or not is the question that I’m asking now.”
Consumer spending continues to be a key engine of economic activity, representing 68 percent of all activity during that first quarter. Consumer spending growth has increased just a paltry 1% in the first half of the year. This begs even larger questions about what consumption patterns will look like in the future, especially as consumers incur higher costs related to imported goods.
The second quarter had GDP growing at a 3% annualized pace. When looked at on average through the first half of the year, GDP growth has been a pitiful 1.2%. For perspective, the three-month average job gains have dropped to anemic levels. Over the last month, they’ve dropped to a mere 35,000, less than one-third of last year’s rate. This decrease comes on the heels of massive downward revisions for both May and June.
Mark Zandi, chief economist at Moody’s Analytics, emphasized the implications of these trends, stating, “The economy is on the precipice of recession. That’s the clear takeaway from last week’s economic data dump.” So he warned investors to reevaluate their risk exposures and start to rebalance away from riskier areas.
Traders are fully pricing in a 25bps rate cut by the central bank. They’re pricing in almost a 90% chance of this occurring at the September meeting, per CME Group data. Severe economic conditions We all know that with an economic crisis comes uncertainty and challenges. As a result, most economists find themselves lowering their growth projections.
Jim Paulsen raised concerns about interest rates amidst growing economic instability: “What are we doing with a national average 30-year mortgage rate still close to 7% in an economy growing at 1%?” He characterized the current economic indicators as lacking health or solidity, stating, “There is nothing ‘healthy or solid’ about these numbers; they are way below the 2% stall speed and shout for help.”
Kevin Hassett noted that while there are reasons for optimism about the second half of the year, the recent jobs numbers suggest diminishing momentum: “There are a lot of really good reasons to be super optimistic about second half of the year. Absolutely that jobs number…does suggest that there’s less momentum than we thought.”
Uncertainty hangs over the economic outlook, and many analysts are left wondering what is next. They are especially concerned about the prospects of more declines in leading indicators and scarring effects on growth to come.