The stock market is at record highs. Corporate profits remain robust. Consumer spending held up through the holiday season. By most visible measures, the U.S. economy enters 2026 in solid shape.

But beneath the surface, troubling signs are emerging that have caught the attention of one of the economy's most closely watched forecasters. Chris Williamson, chief business economist at S&P Global Market Intelligence, is warning that the foundations of American economic strength may be starting to crack.

The Warning Signs

"Business activity continued to expand in December, rounding off another quarter of robust growth, but the resilience of the U.S. economy is showing signs of cracking," Williamson said in his latest assessment. "December's slowdown and job market malaise could spill over into the new year."

The comments accompanied S&P Global's final Purchasing Managers' Index readings for 2025, which showed continued expansion but at a decelerating pace. The composite PMI—which combines manufacturing and services activity—remained above the 50 threshold that separates expansion from contraction, but the momentum that characterized much of 2025 appears to be fading.

A Tale of Two Sectors

The divergence between manufacturing and services continues to widen. The ISM Manufacturing PMI fell to 47.9 in December—its lowest reading since October 2024 and the ninth consecutive month of contraction for the factory sector. New orders declined, employment weakened further, and the backlog of work continued to shrink.

Services, which represent roughly 80% of U.S. economic activity, have held up better but are showing signs of fatigue. The sector still generated growth in December, but the pace of expansion slowed notably from earlier in the year.

"The economy has proven to be far more resilient than I had expected over the last couple of years. But we kept thinking it would slow down—and now we're finally seeing those signs materialize."

— Neel Kashkari, President, Federal Reserve Bank of Minneapolis

The Labor Market Puzzle

Perhaps no economic indicator matters more to American households than the job market, and here the picture is increasingly murky. Friday's employment report for December is expected to show job gains of around 140,000—a respectable number in isolation but well below the pace needed to keep up with labor force growth.

More concerning is what's happening beneath the headline numbers:

  • Hiring has stalled: Companies aren't laying off workers in significant numbers, but they're also not adding staff
  • Job openings have declined: The JOLTS report, due Tuesday, is expected to show continued softening in labor demand
  • Wage growth is moderating: While still positive, pay increases have slowed from their post-pandemic peaks
  • Hours worked are falling: Employers are cutting hours rather than headcount, a classic pre-recession pattern

If December projections hold, 2025 would cap the weakest year for employment growth since 2009—the depths of the Great Recession recovery.

The Confidence Paradox

One of the strangest features of the current economy is the disconnect between objective conditions and consumer sentiment. Despite near-record-low unemployment and rising real wages, consumer confidence surveys show persistent pessimism that analysts have dubbed the "vibepression."

This may be more rational than it appears. While aggregate statistics look healthy, many households are experiencing economic stress that doesn't show up in top-line numbers:

  • Housing costs: Mortgage rates above 6% have made homeownership unaffordable for many
  • Credit stress: Credit card delinquencies have risen to multi-year highs
  • Savings depletion: The pandemic savings buffer has largely been spent
  • Price levels: While inflation has moderated, prices remain 20%+ higher than pre-pandemic

Bank Earnings Will Tell the Tale

The fourth quarter earnings season kicks off next week, with major banks—including JPMorgan Chase on January 13—reporting results that will provide crucial insight into consumer and business health.

Analysts will be watching closely for:

  • Loan growth: Are businesses and consumers still borrowing?
  • Credit quality: Are delinquencies and charge-offs rising?
  • Deposit trends: Are consumers drawing down savings?
  • CEO commentary: How are bank executives characterizing economic conditions?

Banks have their fingers on the economy's pulse like few other industries, and their assessments often prove more accurate than government statistics in capturing turning points.

Policy Uncertainty Compounds the Challenge

Adding to economic uncertainty is the unprecedented policy environment. Tariffs at levels not seen since the 1930s are reshaping supply chains and pricing. The Federal Reserve faces a leadership transition in May. The Supreme Court could upend trade policy with its pending ruling on tariff authority. And midterm elections in November ensure political uncertainty will persist throughout the year.

For businesses, this uncertainty is paralyzing. Companies report difficulty making hiring and investment decisions when they can't predict the policy environment even a few months ahead. This "wait and see" mentality may be self-fulfilling, contributing to the very slowdown it anticipates.

What to Watch

Several data points in the coming weeks will help clarify whether December's weakness represents a temporary pause or the beginning of a more serious slowdown:

  • Tuesday: JOLTS job openings report for November
  • Wednesday: ISM Services PMI for December
  • Friday: December employment report (nonfarm payrolls, unemployment rate)
  • Next week: Consumer Price Index, retail sales, bank earnings

The Bottom Line

Williamson's warning deserves attention, but context matters. Economic forecasters have predicted recession many times since 2022, and the economy has consistently defied those expectations. The labor market, while softening, remains historically strong. Consumer spending, the engine of economic growth, continues to expand.

Yet the accumulation of warning signs—manufacturing contraction, hiring slowdown, consumer stress, policy uncertainty—suggests that 2026 may prove more challenging than the consensus expects. For investors riding record stock market highs, the disconnect between Wall Street optimism and Main Street reality may be the most important risk to monitor.

As Williamson concluded: "The new year brings both promise and peril for the U.S. economy. The next few months will reveal which path we're on."