All the signs that America may be teetering on the brink of recession

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Donald Trump is adamant that the US economy is doing well.

“This is also the golden age of America, because we are doing better than we’ve ever done as a country,” the US president said in a speech to McDonald’s franchise owners and suppliers on Monday. “Prices are coming down and all of that stuff.”

Trump personally thanked the fast food chain for doing its bit by lowering its prices.

But McDonald’s decision to reintroduce “Extra Value Meals” for $5 (£3.82) and $8 in September for the first time in six years was not a symbol of the president’s success in bringing down the cost of living.

Instead, it is one of many symptoms of the deep cracks that are spreading across the US economy.

Chris Kempczinski, the fast food chain’s chief executive, warned at the end of the summer that households are struggling. He told CNBC: “Particularly with middle and lower income consumers, they’re feeling under a lot of pressure.”

So much so that many are skipping meals like breakfast altogether.

Scott Boatwright, Chipotle’s chief executive, also made a similar warning at the end of October. Households with income of less than $100,000 are spending significantly less, Boatwright said. “That consumer is under pressure.”

Massive bets on an artificial intelligence (AI) revolution have driven rapid growth in US tech giants, record stock market highs and a “wealth effect” that is driving spending among the nation’s wealthiest households.

But underneath the AI sheen, much of America’s real economy is on the rocks. Lay-offs have soared, consumer confidence has plummeted and poorer households are becoming increasingly overburdened with debt.

The University of Michigan’s index of consumer confidence dropped to 50.3 in November, down from 71.8 a year earlier, when Trump had just won the election, and close to the all-time record low of 50 seen in June 2022, during the worst of the post-pandemic inflation surge. The lowest it got during the financial crisis was 55.3.

Federal Reserve Governor Christopher Waller earlier this week pointed to the slump in confidence as a possible harbinger of recession, amid what he called “eye-popping” lay-off announcements.

More than a million workers were laid off in the first 10 months of the year, up 65pc on the same period in 2024, according to a report by Challenger, Gray and Christmas, a firm that helps laid off workers find jobs.

In October alone, job losses totalled 153,000, a number that was up by 175pc year-on-year and was the highest figure for any October since 2003.

“We’re very busy. We’re anticipating continued increased lay-offs, at least through the end of the year and the first quarter,” says Andy Challenger, chief revenue officer at Challenger, Gray & Christmas.

“Whether that turns into a full blown recession is a question that I don’t have the same answer for, but it is clearly a possibility. And there’s enough data, I believe, being presented for that to be a serious possibility.”

Major companies that have announced job cuts include Paramount, retailer Target, FedEx, Amazon – which is getting rid of 14,000 workers – and UPS, which has cut 48,000 jobs so far this year.

Waller warned that job losses could mean “more acute” problems for the US economy as whole, given many of those at the sharp end are lower income households already struggling increasingly with debt.

The share of student loans that became 90 days delinquent between July and September soared to a record 14.26pc, according to data from the Federal Reserve Bank of New York. The share of seriously delinquent car loans is at a 15-year high.

In the subprime “auto loan sector” – meaning car loans to people with poor credit ratings – delinquencies have hit their highest level since at least 1993.

If borrowers lose their jobs, they will find it even harder to pay back their loans.

“Financial stress, down market is my first concern,” says Joe Brusuelas, chief economist at RSM US. “Everyone’s going to be watching delinquencies and on auto loans in particular.”

New figures from the Bureau of Labor Statistics on Thursday provided some relief, showing the economy created 119,000 jobs in September, more than double the 50,000 economists were expecting.

However, July and August payrolls were revised down from 79,000 to 72,000 and from 22,000 to -4,000 respectively. The unemployment rate also edged up to 4.4pc, up from 4.3pc.

Goldman Sachs believes the US economy lost 50,000 jobs in October, as government workers laid off as part of Department of Government Efficiency (Doge) cuts hit the end of their deferred resignation periods.

Brian Coulton, chief economist at Fitch Ratings, argues jobs have traditionally always been the most important indicator of the US economy’s health.

In Europe, where workers have more employee protections, job numbers are typically a delayed indicator. But in America, where employers can respond much more quickly to the economic environment, bad job numbers are normally one of the first warning signs for a downturn.

Yet much of the US economy seems somehow immune from the downturn. Consumer spending has slowed but is still rising. Goldman Sachs says GDP is on track to rise by 3.8pc on an annualised basis in the third quarter.

In August, Barclays’ models showed a 50pc chance of a US recession by 2027 – a reading that is unchanged because the shutdown has meant there has been no new government data to update it with.

However, Jonathan Miller, senior US economist at Barclays, said the model may be overestimating the significance of the jobs data because it does not account for a dramatic slowdown in labour supply.

This is happening because of Trump’s immigration crackdown. Jobs growth may be slower partly because there are fewer new workers coming into the labour market, rather than because firms are simply not hiring.

“In isolation, if I saw as much of a slowing in labour income as I’ve seen over the last half year or so, I would definitely be worried about a recession,” says Millar. “But it’s not obvious that this is something that pulls the overall economy into weakness.”

Weakness in the jobs market is also being concealed by the AI-fuelled stock market boom.

Even after the share price falls seen this month, the US benchmark S&P 500 is still up by more than 13pc since the start of the year. Rich households have much of their wealth in shares and these people feel richer.

“That helps to explain the disconnect between slowing labour income and actually still decent consumption. It’s a slightly uneasy narrative, but I do think that’s what’s going on,” says Coulton.

Jonathan Pingle, chief US economist at UBS, wrote in a client note this week that the only things growing in the US economy are investment in AI and spending by higher earners, which in turn is supported by the AI-fuelled stock market surge.

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Without these two factors, American GDP would have climbed by just 0.2pc in the year to June instead of the 2.1pc GDP growth recorded.

“Real residential investment has been declining outright. Real non-residential construction has been declining outright. Real government spending and investment have been declining outright, and before the government shutdown.

“A decent chunk of the US economy is in recession,” Pingle wrote.

The narrow nature of US growth also means it is particularly vulnerable to any slump in the AI market, fears of which have wiped more than $1tn off US equities in recent days.

Pingle added: “If there is an equity bubble, and it bursts, for the real economy, look out below.”

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