If you looked only at the stock market, you might think the US economy has cruised into the new year without a care in the world. Equities are holding up and consumer spending is still decent.
But look a little deeper and the picture becomes murkier. The signals that tell you how the economy is really doing are beginning to fray. Some of them are flashing yellow at the same moment policymakers are flying blind.
The most unsettling shift is not the number of layoffs that are taking place in the US but where they are happening. It is no longer just Big Tech trimming headcount. Layoff announcements are coming from retail, transport, hospitality, media, homebuilding and parts of professional services.
Restaurants are warning that customers are pulling back. Freight carriers say shipping volumes are falling. Builders are sitting on more unsold inventory and slowing new projects.
This is what a broad-based cooling looks like. It starts slowly, spreads quietly, then shows up everywhere at once. For now, the US labour market still looks “fine” in aggregate. But the broadening pattern tells a different story about the next few months. Historically, unemployment moves in a straight line until the moment it doesn’t.
Navigating without a map
You would think a data-driven central bank would be the last institution to operate on guesswork. Yet that is exactly what has happened during the extended shutdown of government economic reporting. Payrolls, inflation, retail sales and other key indicators simply did not arrive.
The Federal Reserve is left with alternative data, anecdotes from companies and a labour market that feels weaker than the official narrative. For a committee built around real-time monitoring, this kind of blind spot creates the risk of delayed action. The Fed will have to adjust quickly if the numbers eventually show that the job market weakened more than expected.
Markets usually do not enjoy that kind of adjustment. When conditions start to turn, credit markets usually notice first. Lately, borrowing costs for riskier companies have ticked higher. Credit insurance tied to major tech firms has inched up as these companies take on more debt to fund huge investments in AI.
When conditions start to turn, credit markets usually notice first.
This is a subtle but important change. For years the tech giants barely needed to borrow. Now they are funding data centres, chips and infrastructure, which require heavy spending. If returns on those investments take time to materialise, leverage becomes more of a gamble.
Equities are still celebrating the AI story. Credit is quietly asking what happens if the story gets more expensive.
Affordability squeeze
Economists debate soft landings and GDP prints. Voters focus on grocery bills and rent. Prices are not falling in a meaningful way, and wages are not rising fast enough to close the gap. That creates a political environment in which leaders reach for visible tools such as tariffs, tax rebates and subsidies.
This mix of economic pressure and political improvisation has a way of spilling into markets. Policy is increasingly shaped by affordability, not ideology.
While the US argued over the shutdown, Asia was quietly constructing the financial structures that will drive global investment over the next decade. Household retirement systems are expanding. Japan’s shift towards equity investing has already changed flows across the region.
The US economy is not collapsing, but it is not as stable as the surface suggests. Layoffs are spreading. Credit is tightening. The Fed is guessing. Trade is becoming structural. And a new financial architecture is being built outside the US.
Markets are relying on seasonality to carry them through the winter. The fundamentals tell a more complicated story.
• Muchena is founder of Proudly Associated and author of ‘Artificial Intelligence Applied’ and ‘Tokenized Trillions’.
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