U.S. Economic Resilience Narrative Fades Amid Weak Jobs, Spending and Housing Data

The notion that the U.S. economy is a “Kevlar economy”—a term used to describe its supposed resilience to shocks—has come under sharp scrutiny as recent economic data has begun to expose cracks beneath the surface. The narrative of unshakable durability, which had gained traction following the Fed’s aggressive rate hikes in 2022 without triggering a recession, is now being challenged by a series of troubling indicators [1]. The latest blow came with the July jobs report, which added just 73,000 nonfarm payrolls—far below the 100,000 that had been expected—while previous months’ data were revised downward, raising concerns over the labor market’s stability [1].

James St. Aubin, CIO of Ocean Park Asset Management, had warned earlier this year that investors were overreliant on the idea of economic resiliency, a narrative that was inflating valuations and underpricing risk [1]. He pointed to political pressures on the Federal Reserve as a growing risk, particularly as President Donald Trump and other White House officials continue to demand rate cuts. Meanwhile, tariffs—once seen as a temporary speed bump—have proven uneven in their impact, with some industries facing more severe headwinds than others [1].

The data further reveals signs of weakening consumer behavior. Spending on services, a critical component of U.S. economic growth, dipped 0.3% year-over-year through May, according to Wells Fargo economists. This is particularly concerning as such a decline has historically occurred only during or immediately after recessions [1]. Discretionary spending on food services, recreational activities, and transportation has also shown signs of contraction. Auto repair, ride-sharing, and air travel spending are all down, indicating that households are tightening their budgets [1].

In the housing sector, the latest data from Citi Research highlights further cause for concern. Residential fixed investment has declined sharply, dropping 4.6% in the second quarter after a 1.3% contraction in the first quarter. High mortgage rates and elevated home prices continue to suppress demand, signaling that the sector—historically a leading indicator of economic downturns—is flashing red [1]. The steep drop in construction spending, particularly for new single-family homes, reinforces this pattern.

Labor market indicators are also pointing to fragility. The labor force participation rate has fallen, with Citi economists attributing this to weak hiring rather than immigration restrictions, despite political rhetoric to the contrary. The recent payroll data confirmed these concerns, showing a labor market that is no longer masking its weaknesses [1]. JPMorgan economists noted that the average of 52,000 private-sector jobs added in the last three months is unusually low and consistent with a slowdown that may precede a recession [1].

The Atlanta Fed’s GDP tracker offers a slightly more optimistic view, forecasting third-quarter growth at 2.1% after 3% in the previous quarter. However, this growth appears to be fueled more by domestic demand than by a fundamental pickup in economic activity [1]. The core PCE index, a key inflation measure, rose to 2.8% in July, complicating the Fed’s ability to respond with rate cuts. With inflation still above the 2% target and the economy showing signs of strain, the central bank remains hesitant to ease policy.

Mark Zandi of Moody’s Analytics has been among the most vocal in sounding the alarm. He argues that the U.S. economy is on the “precipice of recession” due to flat consumer spending, weak hiring, and ongoing inflationary pressures [1]. He attributes the downturn to Trump’s trade and immigration policies, which he says are reducing both corporate profits and household purchasing power.

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[1] Wall Street's view of a 'Kevlar economy' has just been shattered, but red flags were lurking under the radar. (https://fortune.com/2025/08/03/economic-outlook-recession-warning-zandi-jobs-report-fed-rate-cuts/)