Something Is Quietly Breaking in the US Economy

Added: 2026-05-19

[00:00:00]Take a look at these two lines. The blue line shows the healthcare jobs, and the red line shows all other jobs in the US economy. Since 2024, healthcare has been steadily adding jobs, but when we talk about the rest of the economy, the job market has actually been shrinking, which means even though the headline numbers look fine, in reality finding new jobs is already getting harder. Now, this becomes even more important when we look at manufacturing. Manufacturing is one of the most economically sensitive sectors because of its tight link to demand, orders, and real a economy activity. The manufacturing jobs recovered strongly after the 2020 slowdown and peaked around 2023, but since then the trend has rolled over, and today manufacturing jobs are now at the lowest levels since 2022. It's not a sharp collapse like we saw in during 2020, but the change in direction is what matters, because when manufacturing jobs start to weaken like this, it's usually a sign that the cyclical side of the economy is already losing momentum.

[00:00:55]And normally, when the jobs market starts weakening like this, the broader economy tends to follow. But that's not what we're seeing right now. If we look at US GDP growth, the economy is still expanding. The US GDP growth has been over 2% for the past 5 years, which on the surface suggests the economy is still in an expansion. So, we're in this unusual setup where on one side the job market is weakening, while on the other side the economy still looks strong. And that's where the real question comes in.

[00:01:23]If the job market is slowing, then what's actually keeping the economy strong? The answer starts with the consumer. If we look at this chart, we can see that the consumer spending share of the US economy has been rising for decades. Personal consumption accounts for nearly 68% of the US GDP, making it the primary driver of the US economy, which means the strength of the economy today is heavily dependent on the consumer. So, even as the job market starts to weaken, consumer spending is still strong enough to support overall growth. But if we look a little deeper, something doesn't add up, because normally, when the job market weakens, consumer spending should weaken as well.

[00:01:59]That's because spending ultimately comes from income. If people are earning less, they usually spend less, too. But that's not what we're seeing right now, and this chart might explain it. The black line in the chart shows real consumer spending, and the green line shows real disposable income. And recently, we're seeing a wide gap between these two lines. Since last year, consumer spending has continued to rise while disposable income has actually declined.

[00:02:24]This means consumers aren't just spending more. They're spending more than what their income can support, and that's what makes this unusual, which suggests something else is supporting the demand in the economy. And today, what's supporting this consumer spending is borrowing. We can clearly see that here, there has been a sharp rise in consumer loans since 2021, meaning that households are taking more and more debt over time to maintain their current level of spending. So, part of the strength in consumption isn't income driven. It's being supported by borrowing, and that's where pressure starts to build up. This chart shows the delinquency rate on credit card loans, which shows how many borrowers are falling behind on their payments. And today, this ratio stands at close to 3%, which is higher than the levels seen during COVID. But at the same time, if we zoom out, we're still nowhere near the levels seen during earlier stress periods, like in the early 2000s. So, the system isn't breaking yet, but there are signs that a weaker labor market is starting to create financial stress underneath. Now, many argue that the unemployment rate today is around 4%, and it looks relatively stable compared to the past cycles. But when we overlay the unemployment rate with its 36-month moving average, we see a rare signal shaping up. Historically, for the last 70 years, almost every single time when the unemployment rate crossed above its moving average, we saw a recession in the years ahead. And today, we are already seeing that crossover happening again as the unemployment rate ticks higher. This could mean that the labor market isn't just slowing down, but could be signaling something deeper. So, today the headline job numbers still look stable, but stress is building underneath. First with hiring, then in the real economy, and now in household finances. And this is usually how cycle shifts begin, quietly, before they show up in the headline numbers. At capital.com, we'll continue tracking the jobs market and other key indicators and what they mean for investors. Thanks for watching.