Market Pulse Check: A Midyear Look at the U.S. Economy

Highlights:

• The U.S. economy has rapidly changed since February, with increased uncertainty and the risk of stagflation due to slowing growth and persistent inflation pressures.
• Consumer spending, while still relatively strong, shows signs of stress for lower and middle-income households, with rising FHA mortgage delinquencies and student loan repayments posing potential spillover risks to other debt categories.
• Small businesses are experiencing declining confidence and delaying investments and hiring due to rising input costs and trade uncertainty, while global headwinds like a declining appetite for U.S. debt and falling foreign tourism could further impact the outlook.

When Shandor Whitcher joined the Market Pulse podcast earlier this year, the U.S. economy was in a very different place. He reported growth was steady, inflation was gradually easing, and the job market was resilient. But when I welcomed him back this month, the conversation painted a more complex—and quickly evolving—picture.

As an economist at Moody’s Analytics, Shandor brings a data-driven, no-nonsense approach to interpreting economic trends. In this latest episode, we unpacked the shifting landscape, including rising trade policy uncertainty, evolving consumer behavior, and growing stress among small businesses. Here are some of the key insights from our conversation.

A Rapidly Changing Environment

Shandor kicked off the discussion by noting just how quickly the tone of the economy has changed since February. At the start of the year, we were experiencing stable job growth and slow but steady disinflation. Fast forward a few months, and he said we’re facing heightened uncertainty.

What makes this environment particularly challenging is the unpredictability itself. As Shandor pointed out, even economic forecasters like him are struggling to keep up with weekly or even daily changes. If that’s difficult for analysts, imagine what it’s like for businesses trying to make long-term investment decisions or hiring plans.

Impacts of Change and Risks of Downturn

One of the central themes of the conversation was the risk that today’s environment may usher in stagflation—a scenario where growth slows while inflation remains elevated. 

We discussed recent first-quarter GDP data, which showed the first negative print since 2022. While some of that was driven by firms front-loading imports—a sign of business caution—it still adds to the concern that we’re seeing a temporary boost in demand that may not be sustainable later in the year.

Although prices have not yet surged in response to tariffs, that could change soon. Shandor noted that shelter costs remain a key contributor to rising prices, and while energy prices have helped moderate overall pricing, the underlying, structural cost pressures haven’t eased as much as some decision makers would like.

Consumers Are Still Spending

Despite much uncertainty, consumer spending remains relatively strong according to Shandor. In April, real retail spending grew nearly 3% year-over-year. That sounds encouraging—but Shandor cautioned that part of this growth might be a result of “pull-forward” demand, as households spend more now in anticipation of rising costs later.

When it comes to household debt, Shandor prefers to look at the debt service ratio—the share of income needed to meet debt obligations—rather than debt levels alone. By that measure, most households are still in good shape, thanks to historically low mortgage rates locked in during the pandemic. But cracks are forming. FHA mortgage delinquencies are trending upward, signaling that lower- and middle-income households may be starting to feel the pressure.

A Closer Look at Credit Stress

Delinquency rates are rising across several credit asset classes, particularly among lower-income households. Shandor described this trend as a “normalization” rather than a crisis—many of these rates had fallen to abnormally low levels during the pandemic. Still, it’s important to watch these indicators, especially as pressures from student loan repayments return.

One “wild card,” as he described it, is how resuming student loan collections will impact household finances. We’re already seeing a spike in student loan delinquency rates. The big question is whether this stress will start to spill over into other categories of debt, such as credit cards or auto loans.

Small Businesses Are Feeling the Pinch

How are small businesses responding to the current climate? Confidence has declined steadily since December, and many business owners are concerned about rising input costs. With consumers under pressure, it’s unclear whether small businesses can pass those costs along—or whether they’ll have to absorb them, reducing margins.

The uncertainty around trade compounds the challenge. Should businesses stock up on inventory now? Will demand hold? These are tough decisions in an ever-shifting environment, and many seem to be playing it safe, delaying investment and hiring, Shandor explained.

Global Headwinds and Domestic Data to Watch

Shandor highlighted a few global trends that could affect the U.S. outlook. Among them: a declining appetite for U.S. debt among global investors, which could push interest rates higher. At the same time, he pointed to a drop in foreign tourism as another sign of weakening demand for U.S. services abroad.

As we closed out the conversation, I asked Shandor which indicators he’ll be watching most closely in the months ahead. He named two: the Conference Board’s Leading Economic Index and initial unemployment claims. The former is a broad measure of future economic activity, while the latter offers a real-time snapshot of labor market health. If claims begin to rise sharply, he warned, it could signal a broader pullback in consumption—and potentially a recessionary cycle.

Looking Ahead

This episode reinforced what we’ve been hearing across the board: economic resilience is still present, but risks are mounting. From uncertainty to household credit stress and cooling business sentiment, the second half of 2025 will be a critical period to watch.

Stay Informed

For more insights or to suggest topics for future episodes, reach out to the Equifax Advisory team at riskadvisors@equifax.com. And don’t forget to subscribe to the Market Pulse Podcast wherever you get your podcasts.

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