Mark Zandi Warns Millions 'Living On The Financial Edge' In K-Shaped Economy

Mark Zandi says the U.S. economy no longer has much cushion and that millions of households are too close to the edge if anything goes wrong.

Zandi Sees Rising Recession Risks Nationwide

So many Americans are "already living on the financial edge," the Moody's Analytics chief economist warned, speaking to Fortune on Tuesday, calling that strain "fodder for a recession" in what he describes as a deepening K-shaped economy where the affluent pull ahead while everyone else treads water.

Zandi estimates that 22 states plus Washington, D.C., are already in recession or at high risk, together accounting for roughly a third of U.S. GDP. Nationally, the economy is "still not in recession, but the risks are very high. We're on the precipice," he said in August, pointing to flat consumer spending, weakening job growth and tariff-driven shocks.

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Debt, Inflation, Paychecks Squeeze Households

Recent New York Fed data show household debt at a record $18.6 trillion, with delinquencies elevated and stress concentrated among younger, lower-income, Black and Hispanic borrowers even as overall credit quality still looks solid.

Surveys highlight how fragile many budgets have become. A Bank of America analysis finds roughly a quarter of U.S. households living paycheck to paycheck, a share that has crept higher since 2019, while other research puts the broader figure closer to two-thirds when rising rents, food costs and medical bills are included.

Meanwhile, wage gains for low- and middle-income workers still lag cumulative inflation, explaining why "most Americans can't get ahead" even as headline price growth cools.

Affluent Americans Thrive In K-Shaped Recovery

At the top of the "K," it's a different story. Wall Street's AI-driven rally has lifted portfolios and fueled a rebound in luxury spending and high-end card use, allowing affluent households to keep spending even as lower-income consumers cut back.

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