"Critical Signal" Emerged? Moody's Chief: History Shows U.S. on Brink of Recession!

Moody's Chief Economist Mark Zandi issued another warning on Sunday, stating that the U.S. economy is on the verge of a recession. He noted that the onset of a recession often only becomes clear in hindsight. While current employment data does not yet show signs of a downturn, more than half of U.S. industries are already cutting jobs.

He explained that the National Bureau of Economic Research (NBER) is the official arbiter of when recessions begin and end. According to the NBER, a recession involves "a significant decline in economic activity spread across the economy, lasting more than a few months." It also examines a range of indicators, including personal income, employment, consumer spending, sales, and industrial production.

Zandi previously stated last week that when the economy reaches an inflection point—such as a recession—data often undergoes substantial revisions. Last Wednesday, Federal Reserve Governor Lisa Cook similarly noted that large revisions are a "typical turning point" for the economy.

Another concern is the troubling number of industries cutting jobs. Zandi said, "Historically, if more than half of the roughly 400 industries tracked in payroll surveys are shedding jobs, we're in a recession. In July, over 53% of industries were cutting jobs, with only healthcare seeing employment gains."

Zandi also cautioned against complacency due to the unemployment rate remaining "virtually unchanged." He stated, "The unemployment rate would be a particularly poor barometer for a recession right now, as a recent decline in foreign migrant labor has kept the workforce flat."

"Remember, a recession is defined by sustained job losses lasting at least several months. We're not there yet, so we're not in a recession. If policies dragging down the economy are lifted soon, conditions could still improve. But that possibility seems increasingly slim," he added.

Last week, economists at JPMorgan also warned of a potential economic slowdown. They pointed out that employment data shows average private-sector hiring over the past three months has fallen to just 52,000, with stagnation in all industries except healthcare and education.

They explained that businesses typically maintain hiring during what they perceive as temporary slowdowns. When labor demand declines alongside slowing economic growth, it often foreshadows tightening.