The American economy may be on the brink of a recession, with the labor market now viewed as the final line of defense.
Mark Zandi, chief economist at Moody’s Analytics, warned that although layoffs remain low, hiring has slowed sharply. To this end, he projected just 90,000 jobs would be added in July, signaling potential stress in the economy, he said in a July 28 X post.
With fewer industries expanding their workforce, Zandi noted that the strength of the labor market remains the last “firewall” against a broader downturn.
“Fewer industries are adding to their roles, and hiring is moribund. But layoffs remain low. This is the remaining firewall between the weakening economy and recession—let’s hope it holds,” he said.
He also pointed to other troubling indicators. While second-quarter GDP growth is expected to rebound to 2.8%, Zandi noted that a temporary tariff-related boost is inflating the figure. This follows a 0.5% contraction in Q1, meaning first-half growth will fall well below last year’s nearly 3% pace.
Zandi highlighted that real consumer spending has also remained flat since late 2023, a trend likely to continue with the upcoming June data. He warned that looming tariff-driven price hikes could further weaken demand.
On inflation, he noted the Federal Reserve’s preferred measure, the core PCE deflator, is expected to rise 0.3% in June, pushing annual inflation to 2.7%, still above the Fed’s 2% target.
Waning Wall Street recession calls
While most Wall Street analysts have dialed back recession calls, Zandi remains one of the few prominent economists who continues to sound the alarm. He has maintained that Americans should brace for a challenging 2025, citing a “growing list of reasons to be worried” about the economy.
As reported by Finbold, Zandi raised his warning on the housing market from yellow to “red alert,” pointing to persistently high mortgage rates near 7% as a key drag on both homebuyers and builders, potentially signaling further economic weakness.
Although recent U.S. trade deals have helped ease recession fears, Zandi remains cautious that risks remain high. Notably, according to Moody’s machine learning model, the probability of a recession within the next 12 months still stands at 45%.
Featured image via Shutterstock
