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The economy is not falling apart. But important parts of it are barely moving.
The major exception is investment. Business spending on equipment and intellectual property remains strong, with the AI buildout clearly part of that story. And private domestic demand more broadly has not stalled: real final sales to private domestic purchasers rose at a healthy 3.9% annualized rate in the second quarter.
So the weakness isn't everywhere. It is showing up most clearly in hiring, labor-force growth and household purchasing power. At the same time, households have been saving less: the personal saving rate fell from 4.5% in January to 2.7% in June. That can support spending today, but it leaves less cushion if income growth weakens.
That distinction matters.
Hiring has nearly stopped. Payroll growth has averaged just 34,000 jobs per month over the past year. From 2016 through 2019, payrolls grew by about 186,000 jobs per month on average. We are running at less than one-fifth the pre-pandemic pace.
But the supply of workers is shrinking too. The labor-force participation rate fell to 61.4% in July, its lowest reading since February 2021, and is down 0.7 percentage points just since January.
Inflation looked better in July, but falling energy prices did much of the work just as oil was moving sharply higher. Consumers are still spending, but once you adjust for prices, retail spending is mostly treading water.
Put it together and you get an economy caught in an uncomfortable equilibrium: businesses are hesitant to hire, consumers don't have much room to accelerate, and supply constraints are keeping inflation too high for the Federal Reserve to come to the rescue.
Nobody has cracked. Nobody is really moving forward either.
The labor market is stuck on both sides. Start with jobs.
Payroll employment fell by 23,000 in July, and job growth has averaged only about 34,000 per month over the past year. The June JOLTS report told essentially the same story from another angle: the hiring rate was just 3.4%, while quits remained subdued at 2.0%. Companies aren't firing workers in large numbers. They just aren't hiring many new ones.
Ordinarily, that kind of collapse in hiring would produce considerably more unemployment.
It hasn't, in part because the supply of workers is weakening at the same time.
The labor-force participation rate was 61.4% in July, down 0.7 percentage points since January. Meanwhile, one of the biggest sources of labor-force growth in recent years - immigration - has slowed dramatically. Census estimates show net international migration peaking at 2.7 million in 2024, falling to 1.3 million in 2025, with its Vintage 2025 estimates projecting roughly 321,000 in 2026 if the current trends continue.
Consumers haven't stopped spending, but they don't have much room to accelerate. Businesses aren't firing aggressively, but they aren't eager to hire. Wage growth is cooling despite a decline in labor supply.
We are all holding on and hoping something gets cheaper. Which leaves the Fed stuck too.
This is why I don't think the latest data make a compelling case for either direction on interest rates.
The Fed held its policy rate at 3.50%-3.75% in July, but the vote was 9-3. Beth Hammack, Neel Kashkari and Lorie Logan all wanted a quarter-point hike.
The hawks have a point. Inflation remains above target. Energy presents another upside risk. Tariff pass-through isn't necessarily finished. Household inflation expectations have moved up. The PPI categories feeding PCE aren't behaving particularly well.
But raising rates now would mean tightening policy into an economy in which payroll growth has essentially stopped, hiring is weak, wage gains are struggling to keep pace with inflation and retail spending is barely advancing in real terms.
The doves have the opposite problem. Cutting rates would provide relief to an economy that could use it, but it would also mean easing while inflation remains above target and several important supply-side risks are still pointing upward.
So my read is simple: No cuts. No hikes.
Not because everything is fine, but because the economy has managed to put the Fed between a rock and a hard place.
Supply constraints are keeping inflation elevated. Weak hiring is keeping businesses and households cautious. The consumer is still swimming, but barely moving forward.
The Fed can push harder and risk pulling the consumer underwater. Or it can cut rates and risk giving inflation another breath.
For now, the least-bad option is to stay where it is.
Orphe Divounguy is an economist and the co-host of The Center Square's Everyday Economics podcast.