MW Is the U.S. economy getting weaker? Here's what we know.

By Jeffry Bartash

GDP suggests the economy is OK, but a look under the hood shows more signs of wear and tear

Worries about the economy might be starting to affect consumers' spending decisions.

If the U.S. economy was really flying high, the Federal Reserve wouldn't have lowered interest rates last month. So what's really going on?

The economy was still expanding at a decent pace before the government shutdown began last week. And gross domestic product could show another above-average gain in the third quarter, defying predictions of a big slowdown in growth.

Yet the economy is also clearly feeling some strain: Hiring has mostly dried up. Consumer confidence is down. Inflation is creeping higher again. And businesses are struggling to cope with ever-changing tariffs.

Government shutdowns typically don't cause much damage to the economy, but the current impasse is adding to the uncertainty. Critical economic reports used by investors and businesses to guide their decisions have been put on hold, making it harder to decide whether to spend or invest.

"In the absence of government data, private-sector actors - from businesses to investors - are becoming more cautious in their decision-making," said chief economist Gregory Daco of EY Parthenon.

Third-quarter feint?

The recent fraying of the economy might not show up in third-quarter results.

GDP, the official scorecard of the economy, is forecast to grow at an above-average rate for the second quarter in row. The Atlanta Fed's GDPNow tool predicts a frothy 3.8% annual advance in third-quarter growth, matching the second quarter's performance.

Other Wall Street forecasts are more conservative, but they still peg third-quarter GDP in the 2%-plus range. That's a bit faster than what economists view as the optimal speed of U.S. economic growth.

Third-quarter GDP data won't be available at least until the end of the month, however, and possibly even later if the government shutdown extends beyond this week.

Whatever the case, third-quarter results won't tell us much about what is happening in the economy right now. The absence of government data adds to the lack of visibility.

That's why Wall Street has turned toward private-sector economic reports, including some that usually get little attention, to try to fill in the blanks.

Start with the ADP employment survey in September. ADP processes the paychecks of millions of workers for thousands of companies.

ADP said employment contracted for the third time in the last four months - the first time that's happened in 15 years if the pandemic era is excluded.

Read: It's a tough jobs market. Fewer people are quitting. And businesses are hiring workers at the slowest pace since the pandemic.

Surveys of top executives at American companies also showed plenty of angst about ongoing trade disputes, rising costs tied to tariffs and weaker demand among customers who've become more hesitant to spend.

Read: 'We believe we are in a stagflation period': U.S. manufacturers stuck in slump

"These aren't normal times. Until we see more certainty, companies won't do much," said Susan Spence, chair of a survey of manufacturers conducted regularly by the Institute for Supply Management.

American consumers aren't feeling great about the economy, either.

They are spending enough to keep a recession at bay, but they still worry about inflation. And a weakening labor market in which jobs have become much harder to find has become another downer.

These worries about the economy might be starting to affect their spending decisions in a big way. Take the use of credit cards: The amount of credit outstanding in the U.S. fell in August for the third time this year. Credit-card balances have also declined in the past year for the first time since the pandemic.

People are also putting off big home projects such as bath and kitchen remodeling, executives at large big-box home centers say.

Both Home Depot $(HD)$ and Lowe's $(LOW)$ last month told investors that do-it-yourselfers and other customers have scaled back large home-remodeling plans, either postponing them indefinitely or focusing on smaller projects.

Evidence of this newfound caution can also be found in what Americans search for online.

Neil Dutta, head of macroeconomics at Renaissance Macro Research, pointed out in a new research note there's been a sharp drop in the number of searches online for bath and kitchen remodeling plans in the last two months.

The search results for remodeling plans is an example of what economists call "soft" economic data - the sort of thing that can be fickle compared with "hard" data such as the inflation or unemployment rate.

Still, there's no mistake. The most recent hard and soft data alike tell the same story. The economy has gotten weaker.

-Jeffry Bartash

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(END) Dow Jones Newswires

October 08, 2025 11:57 ET (15:57 GMT)

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