September, when it comes to financial markets, tends to have a fearful reputation. This one is looking like it could be no exception. We are only in the second week and already the sobering news is piling up.
Last Friday, US jobs numbers were dismal. August’s non-farm payrolls showed growth slowing dramatically, with barely 22,000 positions added. Revisions revealed that employment shrank in June for the first time since 2020. The unemployment rate rose to 4.3%, its highest since 2021, stoking fears that the labour market is sliding into serious decline.
Adding to the sense of gloom, job openings fell in July to their lowest level in 10 months, slipping to 7.18 million from 7.36 million in June. The drop was sharper than economists had forecasted, and particularly concerning given that it was especially pronounced in sectors which until now had been driving growth, such as healthcare, retail and hospitality. Healthcare vacancies hit their lowest since 2021, a startling reversal given that sector’s outsized importance to recent hiring trends. A staggering 86% of all jobs created this year in the US have been in health and social care.
Manufacturing data out last week painted a similar picture. For a sixth consecutive month in August, US factory activity has contracted, weighed down by shrinking production. US President Donald Trump has made revitalising manufacturing a central goal of his second term, but the reality shows that this does not happen through trade protectionism. Higher import duties from his trade wars and the lingering effects of policy chaos and uncertainty continue to stifle growth. Supply chain disruptions as a result of his meddling have only compounded the sector’s weakness.
Worsening backdrop
The worsening backdrop has already led rates traders to price in aggressive action from the Federal Reserve. With chairperson Jerome Powell already signalling readiness to move at last month’s Jackson Hole central banking powwow, markets now widely expect a rate cut at the Fed’s 16-17 September meeting. Some investors even forecast a full 50 basis point cut. Of course, the biggest risk factor is the CPI data coming out this week; should that come in hotter than forecasted, the Fed will find itself between the Scylla of slowing growth and the Charybdis of higher inflation.
Is the US already in a recession? Officially not. By the measure of the textbook shorthand of a recession — two consecutive quarters of negative GDP growth — the US avoided recession in the first half of the year: output contracted in the first quarter but rebounded in the second.
Interestingly, the official measure in the US is slightly different. The National Bureau of Economic Research applies a more nuanced test, defining a recession as a “significant decline in economic activity spread across the economy and lasting more than a few months”. Its framework uses six key indicators, many of which were hovering around contractionary levels in May. Recent data show continued weakness but not quite enough, at least yet, to satisfy the bureau’s threshold.
Yet other assessments are far more bearish. Pascal Michaillat, professor of economics at the University of California, Santa Cruz, and also a research director at the bureau, estimated that there was already a 71% chance of a recession in May. His model, trained on a century of labour market data, points to falling vacancies and rising unemployment as the clearest warning signs. July marked the first time since 2021 that job seekers outnumbered openings. The direction of travel is clear.
Many Americans would agree with Michaillat’s assessment. In an early August poll by the Economist and YouGov, almost half of respondents said the US economy was “getting worse”. Close to one-third thought the US was already in recession.
Narrow growth engines
What is becoming ever clearer is that the resilience of the Trump-era US economy increasingly rests on just four pillars; a handful of economically powerhouse states, healthcare, artificial intelligence and the wealthy.
According to Moody’s Analytics, astonishingly just three states — California, Texas and New York — account for one-third of US GDP and remain the most economically robust. Meanwhile, states that account for another third of GDP, those scattered across the Midwest and rust belt, where manufacturing and agriculture are concentrated, are already in or near recession.
Sectoral performance mirrors these regional divides. Moody’s data shows that agriculture, construction and manufacturing have already slipped into recession, hurt by tariffs and ensuing uncertainty. By contrast, healthcare and tech/AI continue to expand while financial services, retail and hospitality are flatlining.
Investment trends underscore just how narrow growth has been in the US economy, and how unbalanced its economic fundamentals are looking. Beyond the surge in AI-related spending, private investment elsewhere in the US economy has started to shrink this year under the weight of higher interest rates and uncertainty.
Overall private fixed investment rose about 3% year on year in the second quarter, but strip out AI-related spending, however, and the figure turns negative, down roughly 1.5%. Data centre construction is booming, but residential, manufacturing and other commercial investment is in retreat.
Viewed outside of the MAGA narrative of American exceptionalism and through the lens of hard economic data, the picture is clear. Whether or not the bureau eventually calls a recession or not is a technicality. The US economy is increasingly reliant on a small number of narrow growth drivers to offset broader structural weakness.
Bad news for Trump
The first key takeaway of such data is that this is obviously not good news for President Trump, and a warning sign for his party’s prospects at next year’s congressional elections. Until recently, the US president could argue that his disruptive policy moves — from sweeping import tariffs to an aggressive immigration crackdown — had defied critics with resilient job creation and relatively stable inflation.
The latest data, however, undermines such claims and gives the Democrats fresh ammunition. If key swing states swing into deeper downturns before the midterms, the political fallout for him could be severe, as he risks losing his majority in the house. No amount of ranting at Jerome “too late” Powell on social media will fix the economy.
But second, they raise questions about the durability of the global economy going into the latter part of this year and into 2026. Since the pandemic the global economy has largely been driven by a surging US economy which, in turn, has largely been underpinned by the ever resilient US consumer and massive investment into AI.
Economic detachment from the US
For South Africa, economic detachment from the US looks less like a strategic alternative and more an inevitability. Trump’s tariffs — with rumours of possible sanctions on SA — are already forcing the issue. And if US demand weakens further, due to a slowing economy and possible recession, demand for SA exports will weaken further. This is as much an economic as a political reality.
This is already showing in the data. SA’s exports to the US slumped 18% in the second quarter, even before the 30% tariff kicked in this August, which was far steeper than the 3% drop in shipments to the rest of the world, Absa Corporate and Investment Bank reported this week. Companies that have dependence on the US market need to rapidly diversify their export markets, however possible.
Even more urgent is decisive action from the South African Reserve Bank. Over the weekend, economist Roelof Botha, quoted in the Sunday Times, criticised the central bank for keeping rates too high, calling it an obstacle to growth. With households and businesses still financially fragile after the pandemic, he argued that the Reserve Bank’s inflation first approach risks counterintuitively deepening the cost of living crisis.
This column has warned of an impending slowdown before. That it has not happened doesn’t mean it won’t. The US economy may not have tumbled off a cliff, but all is far from well in the kingdom of Trump. It does not take a Cassandra to recognise that the growth spurt since the pandemic has been unequal, unbalanced and unsustainable. Fresh data this month shows that momentum could be stalling. Markets may not yet have flinched, but history reminds us that September has a habit of unsettling investors. This one may prove no different. DM
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