Is the American economy on the verge of a recession? Consumer credit data suggests otherwise

In recent weeks, concerns about the economic trajectory of the United States have grown in light of persistent inflation, a cooling housing market, and escalating geopolitical tensions. A significant number of headlines in the financial press paint a grim picture for the future. However, an analysis of key indicators—particularly in consumer credit and the U.S. housing market—suggests that the future of the world’s largest economic power may be less bleak than the forecasts indicate.

At Pagaya, we collaborate with over 30 financial partners in the United States and have analyzed nearly 3 trillion dollars in credit applications using advanced artificial intelligence tools that enable us to gain insights into consumer behavior and broader economic trends. Our data indicates a resilient economy, manageable levels of consumer debt, stable payment behavior, and properly functioning markets—all of which mitigate the concerns that have recently emerged.

Karen Danziger, CEO of Investment Funds at Pagaya in Israel.

Households in the United States form the backbone of the economy, and under current conditions, many are holding up well. Across the country, the rates of delinquencies and defaults remain at manageable levels, indicating that consumers are well-prepared to successfully navigate economic uncertainty. Payments continue to be made on time, and spending patterns appear to be adapting to the new reality.

We are indeed witnessing a shift in spending patterns from discretionary consumption—such as travel and dining out—to essential basic goods required for daily life. This shift does not imply reduced spending; rather, it reflects a change in what is being purchased. Additionally, the labor market continues to demonstrate strength with historically low unemployment rates, providing a crucial financial cushion that enables households to make payments on time and remain economically active.

Liquidity also remains high in private credit and alternative markets, reflecting investor confidence. Financial markets are functioning normally, and investors are not retreating but are instead reallocating their assets in response to broader uncertainty.

The American housing market is adapting to high interest rates, with builders employing incentives to address challenges related to buyers’ affordability, sluggish demand, and the decline in construction volume following the boom during the pandemic.

Despite headlines concerning stagflation, weakening demand, and geopolitical risks shaping the economic landscape, the data clearly shows that the American economy is far from collapse. The robust capital present in the housing market, a solid labor market, and restrained consumer payment behavior together form a stable economic foundation.

Economic cycles naturally help eliminate inefficiencies, allowing strong companies and stable financial models to establish themselves and drive sustainable growth. Despite short-term challenges, we believe that while markets may continue to exhibit volatility in the near term, the long-term outlook is more stable and healthier. Even CPI data—as illustrated in the attached graph—does not signal an imminent recession; during previous downturns, volatility was evident, whereas stability now prevails.

Although issues such as trade policy, housing accessibility challenges, and geopolitical instability continue to pose significant obstacles, the data indicates that a severe recession remains distant. The resilience of households, the proper functioning of capital markets, and businesses’ ability to adapt reflect cautious strength.

When analyzing a period of such uncertainty, it is crucial to base forecasts not solely on speculation but primarily on real data that accurately reflects the current situation.

Keren Danziger is the CEO of Investment Funds at Pagaya in Israel.