The United States labor market is signaling a concerning period ahead, with key metrics pointing to a worrying loss of momentum that could impact the broader economy.
According to insights from the Bureau of Labor Statistics (BLS), year-over-year growth in non-farm payrolls has remained below 1.15% for four consecutive months, its weakest stretch since before the 2020 downturn, as shared by The Kobeissi Letter in a July 25 X post.
Historically, similar declines in payroll growth have preceded past recessions, including those in the early 1980s, 1990s, 2001, and 2008. In each case, softening labor trends foreshadowed deteriorating economic momentum long before it was reflected in GDP figures or corporate earnings. The current readings are in the ‘danger zone’.
Notably, the latest data has yet to reflect upcoming annual revisions from the BLS, which often result in downward adjustments. This suggests the true pace of job growth may be even weaker than currently reported.
Fragile trajectory
Even at the onset of the 1980s double-dip recession, job growth was stronger than it is today, indicating that the current trajectory could be more fragile than many assume.
With payroll gains now approaching levels historically associated with the onset of recessions, the resilience of the labor market may be overstated. As wage growth slows and hiring decelerates, consumer spending, already strained by high borrowing costs, faces further pressure.
Meanwhile, the Federal Reserve may soon be caught between persistent inflation and a softening job market, complicating the path forward for monetary policy.
This comes as the White House pushes for interest rate cuts, with some analysts predicting a possible reduction as early as September.
It’s worth noting that recession warnings intensified in April when trade tensions escalated, with some analysts estimating a 60% chance of a downturn. However, expectations have since eased following the U.S. securing key trade agreements with major partners.
However, some economists, including Moody’s Mark Zandi, urge caution. While the probability of a recession has dipped below 50%, Zandi warned the risks remain elevated.
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