The U.S. economy is on the brink of a recession, according to Mark Zandi, chief economist at Moody’s Analytics. More than half of industries are currently shedding workers, a sign that has accompanied past recessions. “The start of a recession is often not clear until after the fact,” Zandi said.
The National Bureau of Economic Research officially determines when recessions begin and end based on indicators like personal income, employment, consumer spending, sales, and industrial production. Payroll employment data is a key indicator. “If payroll employment declines for more than a month consecutively, it would signal a downturn,” Zandi explained.
While employment hasn’t started falling yet, it has barely grown since May. July data showed over 53% of industries were cutting jobs, with only healthcare meaningfully adding to payrolls. Downward revisions to recent job counts have raised concern.
May’s employment gain was revised down from 144,000 to 19,000, and June’s from 147,000 to 14,000.
Job cuts signal likely economic downturn
Average monthly job growth over the past three months is around 35,000, well below forecasts of 100,000.
Zandi noted that at economic turning points like recessions, data revisions often become larger and more frequent. Federal Reserve Governor Lisa Cook agreed, saying significant revisions are “typical of turning points.”
Projections still indicate economic growth, with a third-quarter forecast of 2.5%, up from 2.1% the previous week but below the 3% growth in the second quarter. There are no signs of mass layoffs, as jobless claims haven’t spiked and the unemployment rate remains stable between 4% and 4.2% over the past year.
However, Zandi cautioned against relying on the jobless rate as a recession indicator due to structural labor market issues. A sustained decline in jobs lasting several months would mark a recession, Zandi emphasized. “We aren’t there yet, and we are thus not in a recession.
However, economic policies weighing on the economy are unlikely to lift soon, making a turnaround increasingly improbable.”
Some analysts blame the labor market slowdown on weak demand, while others point to supply constraints from immigration policies. Sectors outside health and education have stalled, and the average workweek remains below 2019 levels, indicating weaker business demand for labor. In sum, the U.S. economy shows no definitive signs of recession yet, but widespread job cuts across industries and repeated downward revisions to job growth suggest a downturn could be near.