Plunging residential building permits signals troubles ahead for the U.S. economy, according to economist Mark Zandi, as developers desist from new construction amid a glut of unsold homes across the country.

"Building permits have been identified as the most critical economic variable for predicting U.S. recessions, according to Moody's new leading economic indicator built using a machine learning algorithm," Zandi wrote on X.

"And while permits had been holding up reasonably well, as builders supported sales through interest rate buydowns and other incentives, inventories of unsold homes are now high and on the rise," he added. "In response, builders are pulling back, and permits have started to slump. They are now as low as they've been since the pandemic shutdowns."

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