Moody's Chief Economist Mark Zandi stated in a recent interview that many Americans are "already living on the edge of financial crisis." If they begin cutting back on spending, it would become "fodder for a recession."
This stark assessment comes amid stagnant hiring, rising unemployment—particularly among the most vulnerable workers—and a surge in layoff announcements. Zandi believes the next phase is already visible: "If we indeed see an increase in layoffs, then an employment recession is certain."
Zandi made these remarks ahead of the delayed JOLTS report released by the US government, though the official data largely confirmed the downturn he had tracked through private indicators. Since this summer, US job openings have risen by only a few hundred thousand, far below pandemic-era peaks. Layoffs have edged up slightly, while quit rates have declined, signaling workers' growing reluctance to leave current positions. Meanwhile, the hiring rate held at 3.2%, a level consistent with employers neither actively cutting jobs nor expanding their workforce—a "low-hire, low-fire" market.
While official data suggests gradual cooling, private indicators paint a starker picture. The November ADP employment report revealed private employers cut 32,000 jobs, the largest drop in over two years. Nearly all losses came from small businesses, which shed 120,000 positions, while larger employers continued hiring.
To Zandi, this pattern is no coincidence. He views it as an extension of disruptions earlier this year when tariff escalations under the Trump administration took effect. "If you look at when job growth truly stalled, it was shortly after 'Liberation Day'," he noted.
With smaller firms lacking the financial buffers available to corporations, wage adjustments become their primary—often only—mechanism to offset rising costs. Zandi argues this makes them the first to crack under policy or pricing shifts, with fractures spreading outward: first hiring freezes, then broader layoffs if conditions worsen.
While ADP captures current employment trends, Zandi sees Challenger, Gray & Christmas data as a leading indicator. Year-to-date, employers have announced 1.1 million layoffs—a figure surpassed only during the pandemic's peak and the Great Recession. Though not all global announcements will materialize as US job cuts, their scale reflects decisions made months in advance, signaling impending reductions.
"The layoffs are coming. They just haven't arrived yet," Zandi said, noting the growing disconnect between rising layoff notices and historically low unemployment claims. He suspects early cuts may target higher-income workers receiving severance or delaying benefit claims, masking initial economic weakness.
Pressure is also building among demographic groups typically first affected in downturns—younger and Black workers—while industries reliant on foreign labor (construction, logistics, agriculture) face shortages due to deportation policies, disproportionately straining small businesses. Concurrently, early AI adoption is reshaping entry-level hiring in tech and information services, a shift Zandi believes traditional datasets may understate.
What prevents outright labor market contraction is robust spending by high-income households despite elevated borrowing costs and lingering inflation. This resilience, amid mounting layoff notices and shrinking hires, reflects wealthier consumers' insulation after a year of stock market gains partly fueled by AI optimism. It also underscores how the "K-shaped economy" has deepened: affluent families buoyed by financial markets while middle- and lower-income workers face mounting stress.
Zandi views such spending as a final buffer against self-reinforcing slowdowns. Yet with lower-income families already stretched, further employment erosion could force spending cuts. Given their disproportionate share of daily consumption, even modest pullbacks might tip today's weak hiring into outright contraction.
As the Federal Reserve debates potential rate cuts this week, the challenge lies in acknowledging Zandi's documented weaknesses without presuming the slowdown yet warrants aggressive intervention.
For Zandi, the concern is more immediate: current small-business job weakness, layoff announcements, and early demographic pressures will converge into the wave of layoffs he sees approaching.
"We're either in an employment recession or getting very close," he concluded.
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