The United States is not in a recession yet, but a veteran British economist is looking at the data and seeing storm clouds forming over Trump’s economy.
In a December 4 column for the i paper, Hamish McRae issues a blunt warning about where he thinks the U.S. is headed in 2026.
“The American economy is heading for trouble, and it may go into recession next year,” McRae warns. “If that happens, it would be bad news for the rest of us, including the UK. That old adage still applies: when the U.S. sneezes, Europe catches a cold.”
He admits that, at first glance, that might sound too gloomy as U.S. stocks are still close to all time highs, with the S&P 500 up around 16 percent this year. Unemployment is about 4.4 percent, the highest since 2021 but rising only slowly. Consumer confidence just took a sharp hit, but McRae notes that drop was “probably associated with the government shutdown, which is now over.”
On the surface, it looks like a slightly slower but still solid expansion. McRae argues that those headline figures hide what he calls “powerful reasons to expect things to slow down sharply in the coming months.”
First, he points to the narrow base under the stock market rally. “One is that the stock market boom has been driven by its technology giants, with the top 10 companies accounting for more than one-third of the total capitalization, up from 18 per cent 10 years ago,” he writes. In other words, a small club of mega tech names is carrying more of the load than ever. If that handful of giants stumbles, the whole market feels it.
Second, he focuses on housing. “Another is that U.S. house prices have weakened. They are not facing an overall collapse, though in some regions, notably Florida, they are very soft. But the big rises of recent years have come to an end, and prices overall are expected to run behind pay increases.” That shift, he suggests, changes how wealthy households feel about their balance sheets and may start to weigh on spending.
The third concern, and the one he labels “the greatest,” is artificial intelligence and what it is already doing to the job market. McRae writes, “In the long-run it is clear that AI will give a huge boost to the overall efficiency of the world economy, and since the U.S. is in the forefront of its development, it should in theory at least be the principal beneficiary. But in the short-run, it is killing jobs.”
He cites an analysis by U.S. outplacement firm Challenger, Gray & Christmas and notes that “AI was cited in U.S. company reports and presentations in enabling a headcount reduction of nearly 50,000 jobs this year. Some 31,000 of those were cut in October alone.” For McRae, that is an early signal of how aggressive corporate cost cutting can be when executives decide new software can do the work cheaper.
The warning is not just aimed at Washington as McRae repeatedly stresses that if the U.S. hits a downturn, the UK and Europe will feel it.
“First, the chances are that recession would pop the equity bubble in America and would inevitably affect share prices in London too,” he argues. “Not a catastrophe, for our markets are much more reasonably valued than the U.S. ones. But it would cast a cloud. Second, any economic slowdown in the U.S. affects our economy directly because it is our largest single export market, though smaller than the EU as a whole. Third, the forces that are cutting jobs there are the same as those affecting employment here.”
