The US economy is no longer running hot - it's cooling toward stall speed

10th January 2026

For the past few years, the defining feature of the US economy was exceptional resilience. It had shown Strong job creation, Rapid wage growth, High consumer spending and businesses hoarding labour after post-pandemic shortages.

That phase is over.

The current job market — weak hiring, fewer openings, low quits — signals that firms no longer expect strong growth. They aren't laying workers off en masse, but they’re not expanding either. This points to an economy that is coasting rather than accelerating.

Economists call this a late-cycle slowdown.

High interest rates are working — but with side effects

The Federal Reserve raised rates aggressively to curb inflation. The labour market is one of the last parts of the economy to feel that pressure.

What we’re seeing now suggests:
Monetary tightening is finally biting
Investment and expansion decisions are being delayed
Risk appetite among firms has fallen

Crucially, this is happening without a collapse in employment, which is what the Fed wanted. But it also means:

Fewer opportunities for workers
Less bargaining power
Slower wage growth going forward

So policy has succeeded in cooling demand — but at the cost of economic dynamism.

The economy looks stable on the surface but weaker underneath

Headline indicators still look "okay":
Unemployment around 4-4.5%
GDP still growing
No surge in layoffs

But the labour market reveals hidden weakness:

People are staying in jobs they dislike because options are limited
Long-term unemployment is creeping up
Part-time and underemployment are rising
Younger and marginal workers are taking the hit first

This is what economists mean by a soft but uneven slowdown — one that doesn’t trigger panic but gradually erodes confidence.

Consumers are becoming more constrained

Because the US economy is heavily consumption-driven, labour market trends matter enormously.

A sluggish job market implies:
Slower income growth
Less job switching (which normally boosts pay)
More cautious household spending

That helps explain why:
Credit card and auto loan stress is rising
Savings buffers are thinner
Consumer sentiment remains pessimistic despite growth

In short: people feel worse than the macro data suggests, and the labour market explains why.

This is a vulnerable equilibrium, not a comfortable one

The current US economy is in a “low-hire, low-fire” equilibrium:

Firms don’t want to lay off workers they struggled to hire
But they also don’t want to commit to expansion
Workers don’t quit, and firms don’t hire

This state can persist for a while — but it’s unstable.

Small shocks (financial stress, geopolitical escalation, policy mistakes) could:

Tip firms into layoffs
Push unemployment up faster than expected
Turn a slowdown into a recession

The margin for error is smaller than the headline numbers imply.

What this means overall

What it does not mean
The US economy is collapsing
A deep recession is inevitable
The labour market is broken

What it does mean
Growth is losing momentum
Policy tightening has real effects now
Risks are rising asymmetrically (hitting younger and weaker workers first)

The economy is more sensitive to shocks than it was a year ago

Bottom line
The slowing US job market tells us the economy has moved from resilient expansion to cautious stagnation.

It is:
Still functioning
Still growing
But less forgiving, less dynamic, and more exposed

In that sense, the labour market is acting as an early warning system — not flashing red, but clearly shifting from green to amber.