Widespread job cuts signal recession risk

A leading economist says broad industry layoffs and payroll revisions may foreshadow a recession even as growth data stays mixed.

Widespread job cuts signal recession risk top economist warns

The U.S. economy has not entered a recession, but Moody’s Analytics chief economist Mark Zandi says the spread of payroll reductions across more than half of the 400 payroll industries is a warning sign. He notes that revisions to recent job gains could already show employment shrinking, and that the official dating of a recession rests with the NBER. Payrolls rose by 73,000 in the latest month, far below the roughly 100,000 forecast; May’s tally was revised down from 144,000 to 19,000 and June’s from 147,000 to 14,000, leaving the three month average at about 35,000.

Zandi adds that more than half of industries cutting jobs in July underscores a deteriorating labor picture, with only healthcare showing meaningful gains. While the labor market has not produced mass layoffs and unemployment has stayed in a tight 4% to 4.2% range, revisions to past data could change the narrative in coming months. The official recession dating is complex and depends on a broad look at income, spending, production and employment across time, not a single figure.

Wall Street remains divided. The Atlanta Fed’s GDP tracker still points to growth, and the third-quarter forecast nudged up slightly, though the pace is slowing from the second quarter. Some analysts see weak labor demand as the culprit for slower hiring, while others point to labor supply gaps tied to immigration policy. JPMorgan has warned that a slide in labor demand often precedes retrenchment, while Bank of America cautions markets may be conflating recession with stagflation.

The data story here is about timing and interpretation. Revisions are common near turning points, and a broad slowdown in hiring across industries could precede a downturn even if unemployment remains stable in the short term. The pace of revisions matters because it chips away at confidence in the strength of the labor market. On policy, the economy faces a tension: stimulus or towing policy shifts could either lift growth or amplify uncertainty for employers. The immigration disruptions cited by several analysts could also tighten the labor pool, making a weak demand scenario harder to offset. In this debate, what matters most is whether the trend lasts beyond a few months or fades as policy moves take effect.

Longer term, the economy hinges on a balance between demand and supply. If hiring cools further and foreign-born workers remain scarce, even modest growth could feel like a slowing economy to households and businesses watching wages, prices and job prospects. The real question is whether policy steps can stabilize confidence and keep hiring steady before mood and markets price in a downturn.

Highlights

The road ahead will test how quickly policy choices translate into real hiring.