Recession Alarms Sound as US Job Market Shows Troubling Signs

The US job market is flashing warning signs that have economists concerned about a potential recession. Last Friday's jobs report revealed a dramatic slowdown in hiring over the past three months, with the Bureau of Labor Statistics (BLS) revising May and June's job totals lower by a combined 258,000 jobs. This massive revision has set off alarm bells, as such large adjustments have historically preceded recessions since records began in 1968.

Key concerns from the report include:

• Hiring has slowed dramatically, with the US economy adding an average of just 85,000 jobs per month this year, well below the pre-pandemic average of 177,000 jobs.
• Private sector jobs outside of education and health have been lost over the past three months, a troubling indicator.
• Business uncertainty surrounding Trump's tariffs is likely distorting job growth, with companies freezing hiring and changing investments due to fears of rising costs.

Despite these warning signs, the US is not officially in a recession yet. The National Bureau of Economic Research tracks four key indicators of economic activity—consumer spending, personal income, factory production, and employment—none of which have pointed to a recession until now. However, the recent jobs report suggests the economy may be weaker than previously thought.

Additional factors contributing to the slowdown:

• Trump's immigration policy has led to 1.4 million people dropping out of the US labor force since April, 802,000 of whom were foreign-born.
• Seasonal adjustments and low survey responses have made the jobs report more challenging to estimate, leading to larger revisions.

Economists are divided on the next steps:

• Some, like Keith Lerner of Truist, believe the Federal Reserve needs to lower interest rates soon to address the slowing economy.
• Others, like Robert Ruggirello of Brave Eagle Wealth Management, argue that businesses are simply waiting for more policy certainty before resuming hiring.

Goldman Sachs and Bank of America have weighed in, noting that while the revisions are concerning, they align with other economic indicators. The silver lining is that much of the revision was due to seasonal adjustments, which may mean future revisions will be less dramatic.