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By Hugh Cameron
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A string of troubling data points may be upsetting the narrative that momentum is building in the U.S. economy, and are raising questions about whether the country could be drifting toward a downturn in 2026.
Until recently, the economic outlook had been somewhat sunny, with administration officials predicting blockbuster GDP growth on the back of President Donald Trump’s domestic agenda, and a handful of indicators coming in stronger than experts had anticipated.
But more now appear to be flashing red, and the new conflict in the Middle East has heightened concerns that the economy could enter a recession in 2026.
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Jobs Growth Has Turned Negative
According to the latest report from the Bureau of Labor Statistics (BLS), the U.S. economy lost 92,000 jobs in February, despite forecasters having penciled in a 59,000 increase.
Jobs growth has now turned negative in five of the last nine months and, following major revisions to previously reported figures, slowed essentially to a standstill since January of last year.
And February’s reading—roundly viewed by analysts as both a disappointment and cause for concern—were broad-based. Perennially struggling sectors like manufacturing continued to shed payrolls, and health care, previously considered a mainstay of American job creation, saw the loss of 28,000 jobs.
And even before the forecast effects of Iran on hiring activity materialize, one economist said the report and those before it revealed that the U.S. may have already entered what he dubbed “a jobs recession.”
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Consumer Spending
Consumer spending is estimated to account for around two-thirds of America’s GDP, and so fluctuations are treated with particular interest by analysts and policymakers.
And while this remained largely resilient throughout 2025, despite tariffs and weakening employment prospects weighing on sentiment, recent data shows that prolonged financial difficulties may be beginning to dampen spending activity, especially among the country’s lower‑ and middle‑income households.
Retail sales ticked down 0.2 percent in January, according to last week’s report from the Commerce Department, following a flat reading in December.
Morgan Stanley expects this year’s outsized tax refunds to prop up household finances and spending in the short term, but this was according to an analysis published prior to the February 28 U.S.-Israeli strikes on Iran.
And financial pressures are only expected to compound as the conflict drives up oil prices and with them both pump costs and prices for staple goods. Mark Zandi, chief economist at Moody’s Analytics, told CNN that each $10-per-barrel increase in global oil prices would push up annual household costs by $450, and analysts have said sustained increases could materially increase inflation expectations for the remainder of the year.
The Housing Market
In line with trends observed across 2025, the U.S. finds itself in the midst of a severe affordability crisis in housing, pushing down sales and resulting in sellers now outnumbering buyers at rates not witnessed since the financial crisis.
Existing home sales fell 8.4 percent month-over-month in January to an annualized rate of 3.91 million, far below forecasts and marking the steepest drop in nearly four years.
“The job market seems soft, but unemployment is still low. Consumer sentiment is poor, but households are still spending,” Curt Long, chief economist at the trade association America’s Credit Unions said in January. “One of the few places in the economy we can speak about definitively is housing, and the picture there is not good.”
Long pointed to long-term sales declines as well as sluggish construction activity in concluding that the housing sector had already slipped into its own recession.
Small Business Confidence
While business confidence as a whole experienced a slight upswing in January, Federal Reserve data shows that small businesses are broadly pessimistic about how they will fare in 2026.
The Small Business Credit Survey, released last week, found that the share of small businesses anticipating revenue growth dropped to its lowest level since 2020 in 2025, as expectations for employment growth also sank to multiyear lows.
More firms also reported difficulty reaching their customers, as well as challenges associated with higher input costs and uncertainty surrounding tariffs and interest rates.
The NFIB’s latest small business survey, released Tuesday, revealed that companies were slightly less optimistic about the economy and business conditions in February compared to January. However, overall sentiment remains above its 52-week average and the “Uncertainty Index” dropped notably compared to the previous month.
Credit Conditions Are Tightening
Tightening credit conditions are considered a reliable precursor to economic slowdowns, given these limit businesses' capacity to invest and consumers' ability to spend.
The Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) has found that banks continued tightening their lending standards toward the end of 2025 and into this year.
The latest survey indicated stricter standards for commercial and industrial loans for businesses of all sizes, as well as weaker demand for several forms of household credit.
In February, KPMG senior economist Meagan Schoenberger cautioned that these conditions are not expected to let up in the near term, despite recent interest rate cuts, and said that consumers and businesses “entered 2025 with a lot of momentum but could encounter obstacles later and in 2026.”
What People Are Saying
Dean Baker, co-founder of the Center for Economic and Policy Research (CEPR), told Newsweek: “I think the main risks of recession are a collapse of the AI bubble and the war. Prior to that, the economy was slowing and many people were hurting, but I didn't see a recession as likely. But $100-plus oil prices could bring us very close.”
Mark Zandi, chief economist at Moody’s Analytics, told Newsweek: “Higher oil prices have already lifted gasoline prices, and with higher diesel and jet fuel prices, inflation for other goods and travel will soon rise. Long-term rates, including mortgage rates, have also risen as bond investors worry about the inflationary effects of events. Stock prices have also taken a hit. All of this will hurt consumers' willingness and ability to spend, particularly by lower and middle-income households. If this weakening in demand causes businesses to begin laying off workers, a recession will become more likely than not.”
The Committee for a Responsible Federal Budget (CRFB) wrote in a recent report: “While no one knows when the next economic shock will hit or what it will look like, it is clear that policymakers are woefully underprepared to address it in a fiscally responsible way. The country is almost certain to enter the next shock more indebted than we have ever been before, which may significantly hamper our ability to marshal an appropriate response.”
Diane Swonk, chief economist at KPMG US, told Newsweek: “The economy has proven remarkably resilient and we have fiscal stimulus that could provide a lift via a surge in tax refunds this Spring.
“I live with a healthy dose of humility given the decoupling we have already seen between growth and employment. Much rests on whether affluent consumers are spooked by recent market volatility and whether the K-shaped economy narrative collapses.”
RSM US chief economist Joe Brusuelas, speaking to CNN on the impacts of the Iran war, said: “The risk of a recession has materially increased, but we’re not there yet. The U.S. is a $30 trillion dynamic and resilient beast. It has plenty of room to absorb an oil-based shock.”
What Happens Next
Recession probability forecasts are currently not at alarming levels, JPMorgan currently putting the odds at 35 percent, down from 60 percent in April following Trump's "Liberation Day" tariff announcements.
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