The U.S. labor market is showing alarming signs of contraction, prompting Moody’s Analytics‘ top economist Mark Zandi to warn that a full-blown recession could be on the horizon.
Labor Market Shrinks For First Time Since 2020
Zandi described the current situation as a "labor recession," noting that revisions for June revealed a shrinking workforce for the first time since 2020, as reported by Business Insider on Friday
Preliminary benchmark revisions, coming on September 9, could show even steeper declines in job additions.
Fewer Jobs Without Widespread Layoffs Signal Economic Risk
"These downward revisions and outright job losses are coming without a significant increase in layoffs," Zandi said.
"If businesses start laying [people] off, then I think this will not just be a jobs recession, will be an overall economic downturn."
Zandi compared the economy to someone "clinging to the edge of a cliff."
He explained, "Everything is clinging tightly to the lip of the cliff,” he stated. We had 10 fingers on the edge of the cliff a couple months ago, we now [have] seven fingers. A couple more fingers, and we’re going, then we’re going over the edge."
While interest rate cuts are expected following recent jobs reports, Zandi cautioned that much of the potential benefit has already been priced into markets.
"A lot of the benefit of the lower rates is already in the [market] because investors anticipated the rate cuts," he said.
US Recession Risk Rises As Federal Job Cuts Hit Washington DC Region
Last month, Zandi said the U.S. economy was on the “edge of recession,” with states accounting for nearly a third of national output already in or at high risk of one, citing fresh state-level readings of employment and output.
Based on his assessment, states making up nearly a third of U.S. GDP were either in or at high risk of recession, another third were just holding steady, and the remaining third were growing.
Zandi's dashboard highlighted concentrated weakness around the nation's capital, noting that the broader Washington, D.C., area "stood out" due to steep federal workforce cuts earlier in the year.
According to the Richmond Fed, about 22,100 federal workers lost jobs across D.C., Maryland, and Virginia from January through May.
On Friday, Zandi reiterated his comments through a post on X, saying that the U.S. economy has entered a jobs recession, as hiring has flatlined and momentum has all but vanished.
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