It seems like all is well for the US economy — until you take a look under the hood.
Neil Dutta, the head of economic research at Renaissance Macro, pointed to a handful of signs in a note this week that suggest the US economy may not be as strong as it seems on paper.
The headline figures suggest otherwise. Real GDP was estimated to grow at an annualized rate of 3% in the second quarter, beating estimates and showing a sharp rebound from the prior three-month period.
But Dutta suggested that things could be weaker at second glance, showcasing various signs of weakness across the housing market, job market, and consumer and corporate finances.
Here are some signs that the economy isn’t as strong as it seems.
1. Housing is cooling off
The housing market isn’t nearly as hot as it used to be.
Home prices declined 0.34% in the 20 largest US cities in May, according to the Case-Shiller 20 City Home Price Index. That marks the index’s third-straight month of declines, Dutta said, one such sign that housing demand remains weak.
Other signs have emerged in the past year to suggest that the US housing market is frozen over.
Pending sales dropped 2.8% year-over-year in June, according to data from the National Association of Realtors.
Meanwhile, active home listings in the US climbed 28% year-over-year in June, according to data from Realtor.com, with total active listings now hovering at their highest level since the pandemic.
“The US housing market is in recession with weakening construction and declines in prices across major markets,” Dutta wrote in a separate client note in July.
“The truth is many recent buyers assumed they’d be refinancing into lower rates by now. That has not happened and as a result, we’re seeing more homeowners put their homes up for sale.”
2. Job market flashing signs of weakness
The US added more jobs than expected last month, while the unemployment rate remained near a historic low, according to the Bureau of Labor Statistics.
But some Americans are feeling differently about their prospects of finding a new job. The Conference Board’s Labor Market Differential — which measures the difference between the percentage of consumers who think that jobs are plentiful and percentage who think jobs are hard to get, declined to 11.3, marking a “fresh cycle low,” Dutta said.
“The deterioration in the Labor Differential is a sign that labor market conditions are somewhat weaker than one would expect given the low unemployment rate,” he wrote.
The job market generally appears to be stuck in a “slow hire, slow fire” phase, Dutta added, pointing to payrolls and layoffs in the private sector holding steady in recent months.
3. A weaker US consumer
More Americans — even in high-income households — are falling behind on debt payments.
Delinquencies among households that earn $150,000 or more have more than doubled since 2023, according to data from the credit-scoring firm VantageScore. That reflects a steeper rise in late payments than lower-earning Americans, with delinquencies rising 60% among households earning between $45,000 and $150,000, and delinquencies rising 22% for households earning less than $45,000.
Dutta says the trend can largely be explained by a weaker job market for white-collar workers. Job-finding prospects for those earning six figures or more have fallen to their worst levels since before the pandemic, Dutta said, citing survey data from the New York Fed.
Consumer spending also appears to be slowing overall. Personal consumption expenditures, one measure of how much Americans are spending on goods and services, slowed its pace of growth to 4.7% year-over-year in June, down from a peak of 5.7% in late 2024.
4. Corporate delinquencies on the rise
Corporate borrowers are also running into trouble. The dollar amount of defaulted corporate debt surged to $27 billion in the second quarter, up from $15 billion in the prior three-month period, data from Moody’s shows.
694 companies filed for bankruptcy in 2024, according to a separate analysis from S&P Global. That was the highest amount of global bankruptcies reported for the year since 2010, the firm said.
The average default risk for public US firms also rose to 9.2% at the end of 2024, the highest level since the Great Financial Crisis, Moody’s asset management research team wrote in a note in March.
“US credit markets have experienced significant deterioration following recent tariff announcements, with corporate distress accelerating across multiple sectors,” Dutta wrote.
Private equity-backed firms are also starting to buckle. PE-backed companies made up around 60% of bankruptcy filings last quarter, Dutta said.
“These firms, many acquired during the low-rate environment of 2022, now face acute liquidity challenges as market conditions tighten,” he added.
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