A Third of the U.S. Economy Is Already in a Recession or at High Risk, and Another Third Is Stagnating, Zandi Warns

The U.S. economy is sending mixed signals in 2025. On the surface, job growth continues and inflation has cooled compared to the highs of recent years. But beneath that stability, cracks are widening. According to economist Mark Zandi, chief economist at Moody’s Analytics, a significant portion of the economy is either already in a recession, on the verge of one, or stagnating. His warning paints a sobering picture of the uneven recovery that is defining the post-pandemic era.
The Breakdown: Three Different Economies in One
Zandi describes the U.S. as effectively operating in three distinct tracks:

One-third in recession: Key sectors like commercial real estate, manufacturing, and parts of technology are already experiencing contraction. Rising borrowing costs, weak demand, and layoffs have pushed these industries into downturn territory.
One-third at high risk: Industries tied to consumer spending and small businesses are vulnerable. With household savings depleted and credit card delinquencies rising, discretionary sectors such as retail, travel, and hospitality are at risk of tipping into recession.
One-third stagnating: Other parts of the economy, including healthcare and certain service industries, are growing only marginally. While not in outright decline, these areas are failing to deliver meaningful momentum to offset weakness elsewhere.

Why the Economy Feels Uneven
This fragmented performance reflects the lingering effects of inflation, interest rates, and shifting consumer habits:

High interest rates: The Federal Reserve’s aggressive rate hikes over the past two years have made borrowing more expensive for businesses and consumers, slowing growth.
Corporate caution: Many companies are freezing hiring, delaying investments, and focusing on cost control instead of expansion.
Household strain: Wages have risen, but not fast enough to offset years of inflation. Families are spending more on essentials like housing, food, and energy, leaving less room for discretionary purchases.
Structural shifts: Technology adoption, automation, and the decline of traditional office work continue to reshape industries, leaving some workers and regions behind.

Warning Signs Across Industries

Commercial real estate: With office vacancies at record highs, landlords and lenders are under severe pressure. This sector’s weakness could spill into the broader financial system.
Manufacturing: Demand has softened due to slower global trade and cautious corporate spending.
Tech and startups: Venture capital funding has tightened, leading to layoffs and reduced innovation spending.
Retail and consumer goods: Debt-laden households are pulling back, particularly in lower- and middle-income brackets.

What It Means for Workers and Businesses
If Zandi’s outlook holds, the U.S. may avoid a formal nationwide recession but still experience “rolling recessions” where certain industries contract while others remain flat. For workers, this means job security will depend heavily on sector and skillset. For businesses, it underscores the importance of resilience — focusing on efficiency, risk management, and innovation even in uncertain conditions.
The Policy Challenge
The Federal Reserve faces a difficult balancing act. Lowering interest rates too soon risks reigniting inflation, while keeping them elevated could deepen contractions in vulnerable sectors. Fiscal policymakers also face pressure to address affordability crises in housing, healthcare, and education without worsening the deficit.
The Bottom Line
Mark Zandi’s warning is clear: the U.S. economy is not uniformly strong, and risks are spreading across industries. While some sectors remain resilient, a third of the economy is already in recession, another third is stagnating, and the rest is on shaky ground. For businesses, workers, and policymakers alike, the next year will be about navigating uncertainty and adapting to a slower, more uneven recovery.