Cause of Recent US Economic Slowdown
By Goldsea Staff | 07 Sep, 2025

Four leading AI chatbots reveal their analyses of the factors responsible for the recent US economic slowdown. Most agree that Trump policies are behind the malaise.

We surveyed four leading AI chatbots with the question: What factors have caused the recent slump in the US economy?

xAI's Grok:

### Current State of the US Economy

As of September 2025, the US economy shows signs of a slowdown following a contraction in Q1 (0.5% annualized GDP decline) and a rebound in Q2 (3.3% growth). However, Q3 estimates vary, with the Atlanta Fed's GDPNow model projecting 3.0% growth as of early September, while the Philadelphia Fed's survey of forecasters anticipates a more modest 1.3%. Recent data, particularly the August jobs report, has heightened recession fears, with only 22,000 jobs added (far below expectations) and unemployment rising to 4.3%—the highest since 2021. Economists like Moody's Mark Zandi describe the economy as "on the brink" of recession by year-end, driven by policy-induced pressures, while JPMorgan pegs the probability at 40% for the second half of 2025. A notable event was the April 2025 stock market crash, triggered by new tariffs, which erased $6.6 trillion in value before a partial recovery. Overall, growth for 2025 is now forecasted at around 1.3%, down from earlier estimates, amid stagflation risks (sluggish growth with rising inflation).

### Key Factors Contributing to the Slump

The slowdown stems from a mix of policy decisions, particularly under the second Trump administration, combined with lingering structural issues. Below are the primary factors, based on recent analyses:

1. **Escalating Tariffs and Trade Wars**  

   Sweeping tariffs introduced on April 2, 2025 ("Liberation Day"), imposed a 10% baseline on most imports, with rates up to 245% on China, 20% on the EU, and others on Canada and Mexico. These have driven up costs for businesses and consumers, disrupted supply chains, and reignited inflation. Manufacturing has been hit hard, with 42,000 jobs lost since April despite aims to boost domestic production. JPMorgan attributes a "stagflationary" slowdown directly to these policies, forecasting reduced global growth and higher US inflation. Zandi notes tariffs are already passing through to prices, delaying investments and hiring. The April crash exemplified immediate market panic, though a temporary pause and trade deals with China aided recovery by June.

2. **Restrictive Immigration Policies**  

   Tighter immigration controls have reduced the foreign-born labor force, contributing to labor shortages and weaker job growth. Zandi highlights this as a key pressure on economic expansion, with demographic shifts making it harder to fill roles in sectors like construction and services. The August jobs report noted a decline in immigrant workforce participation, exacerbating the slowdown despite overall hiring stagnation. This has disproportionately affected youth unemployment (10.5%) and new graduates.

3. **Weakening Labor Market**  

   Job growth has stalled dramatically: June saw a net loss of 13,000 jobs (first since the pandemic), and August added just 22,000—well below the 76,500 expected. Unemployment hit 4.3%, with 7.4 million out of work. Industries like manufacturing and construction are already in recession-like states, per Zandi, amid a "low hiring, low firing" environment fueled by uncertainty. PNC economists link this to tariff concerns and spending cuts, signaling broader slowdown risks.

4. **Persistent Inflation and High Interest Rates**  

   Inflation is rebounding due to tariff pass-throughs and supply shocks, eroding real wage gains (only 1.2% year-over-year through July, despite nominal 3.7% earnings growth). The Federal Reserve's policy remains a headwind, with rates held high to combat this, further dampening investment and consumer spending. This stagflation dynamic—slow growth plus sticky prices—echoes 1970s concerns and has lowered 2025 growth forecasts.

5. **Federal Spending Cuts and Policy Uncertainty**  

   Initiatives like the Department of Government Efficiency (DOGE) have introduced cuts, adding to business hesitation on hiring and expansion. Broader uncertainty from volatile trade policies and fiscal tightening has created a cautious environment, with AI adoption potentially reducing entry-level jobs. Deloitte outlines three uncertain paths ahead, shaped by tariffs, monetary policy, and yields.

6. **Stock Market Volatility and Global Spillovers**  

   The April crash, the largest two-day loss in history, stemmed from tariff fears and led to global sell-offs (e.g., Nikkei down 7%, oil prices falling 7%). While markets rebounded after interventions, lingering volatility has eroded consumer and business confidence, contributing to the Q1 contraction and ongoing caution.

Forecasters are split: Some, like the Philadelphia Fed survey, see a narrow dodge of recession, but others warn of deepening if policies persist. Monitoring upcoming data, like September jobs and Q3 GDP, will be crucial.

**

OpenAI's ChatGPT:

### Key Drivers Behind the U.S. Economic Slump

#### 1. **Aggressive Tariff Policy & Trade Tensions**

* The Biden-to-Trump transition ushered in sweeping “Liberation Day” tariffs starting April 2, 2025, cutting across nearly all imports. This triggered global market volatility and a stock market crash in early April([Wikipedia][2]).

* The Federal Reserve’s "Beige Book" notes tariffs are raising input costs, prompting businesses to freeze hiring or raise prices, and forcing consumers to curtail spending([Investopedia][3]).

* Manufacturing has contracted for six consecutive months, highlighting depressed demand and ongoing cost pressures tied to tariffs([MarketWatch][4]).

#### 2. **Labor Market Weakness & Layoffs**

* In August, only 22,000 jobs were added — well below expectations — while the unemployment rate rose to 4.3%, the highest since 2021([The Washington Post][5], [AP News][6]).

* AI-driven automation across sectors like manufacturing, tech, retail, and finance has led to widespread layoffs — over 800,000 announced in 2025, with major firms like Microsoft, Intel, and Salesforce downsizing([The Washington Post][5]).

* Employers are pulling back on hiring; job postings are dropping sharply in childcare, retail, and community services, compounding the slowdown([The Washington Post][5], [AP News][6]).

#### 3. **Decline in Foreign-born Labor**

* Tighter immigration policies have significantly reduced the inflow of foreign-born workers, particularly impacting labor-intensive industries. This is restricting business operations, slowing productivity, and maintaining inflationary pressure([The Times of India][7]).

#### 4. **Macro Uncertainty & Rising Recession Risks**

* With indicators such as rising unemployment and lagging sectors, some economists see nearly a 50% chance the U.S. could already be in a recession([Financial Times][1], [The Washington Post][8]).

* Moody’s chief economist Mark Zandi warns that a third of U.S. economic output comes from states that are either already in downturn or at high risk([The Times of India][9]).

* The combination of uncertainty, fiscal pressure, and rising deficits may further crowd out private investment and impede growth([Visa][10]).

### Broader Economic Context

* **Consumer sentiment and spending**, while still holding up compared to the depths of a recession, is beginning to show signs of strain due to cost pressures from tariffs and slowing job growth([Financial Times][1], [EY][11]).

* **Productivity and manufacturing output** are contracting, reflecting broader global trade uncertainty and less business confidence([MarketWatch][4], [Financial Times][1]).

### In Summary

Although no formal recession has been declared, the U.S. economy is navigating multiple stress points:

* Escalating trade tensions and tariff costs are hampering businesses and jobs.

* AI-led automation and layoffs are weakening labor markets.

* Reduced immigration is deepening sectoral labor shortages.

* Uncertainty and high fiscal pressure are rattling investor and business confidence.

Together, these dynamics are contributing to a noticeable economic downturn — one that policymakers and investors are watching closely.

**

Google Gemini:

The recent slump in the U.S. economy, characterized by weak job growth, slowing consumer spending, and heightened recession fears, is attributed to a combination of factors.

A central theme in the current economic downturn is the impact of recent U.S. trade policies, particularly the implementation of sweeping tariffs. These tariffs have contributed to several negative trends:

* **Weakened Labor Market:** The labor market has shown significant signs of cooling, with the slowest three-month hiring pace since the 2020 pandemic. Job growth has slowed to near-zero, and the unemployment rate has risen to its highest level in nearly four years. The manufacturing sector, which was a key target of the tariffs, has been particularly hard-hit.

* **Reduced Consumer Spending:** Rising costs due to tariffs and concerns over job security have led to sluggish consumer spending, which is a major driver of the U.S. economy.

* **Supply Chain Disruptions:** The tariffs have created uncertainty for businesses, making it difficult to plan new investments and hiring.

* **Inflationary Pressures:** While some inflation is cooling, tariffs are expected to cause consumer prices to rise as companies pass on increased costs.

Another significant factor is the decline in the foreign-born workforce. Restrictive immigration policies have led to a sharp drop in the number of foreign-born workers, which has weighed on job creation and overall economic growth. This decline in the labor force also risks creating supply bottlenecks and fueling inflation.

In addition to these policy-driven factors, other ongoing economic challenges are contributing to the slump:

* **Struggling Housing Market:** The housing market continues to face difficulties, with a rising inventory of unsold homes.

* **High Inflation:** While inflation has slowed from its peak, it remains elevated and a concern for both consumers and policymakers.

* **Corporate Profit Margins:** Deteriorating corporate profit margins are a leading indicator of a potential recession, as it suggests firms may be more likely to reduce labor.

These factors have created an environment of economic uncertainty, leading economists and investors to express concern about the U.S. economy's direction and the increased risk of a recession.

**

Microsoft Co-Pilot:

The recent slump in the US economy can be attributed to several key factors:

Globalization and Financial Deregulation: Policies like globalization and financial deregulation introduced structural vulnerabilities, leading to stagnation and high trade deficits. 

Inflation and Consumer Sentiment: Rising inflation and concerns about consumer confidence have negatively impacted market sentiment, leading to a decline in US markets. 

Trade Deficits: A record trade deficit has been a significant factor, as imports have surged, contributing to economic contraction. 

Policy Uncertainty: Ongoing policy uncertainties and expectations of tariffs have further strained the economy, affecting consumer spending and business confidence. 

These factors collectively contribute to the current economic challenges faced by the United States.