Mark Zandi is worried that the labor market no longer has a buffer.
So many Americans are “already living on the financial edge,” the chief economist for Moody’s Analytics told Fortune. If they start to pull back, that’s “fodder for a recession.”
The stark assessment comes as hiring has stalled, unemployment is rising—especially for the most vulnerable workers—and layoff announcements are piling up. To Zandi, the next stage is already visible: “If we actually do see layoffs pick up,” he told Fortune, “then it certainly would be a jobs recession.”
For Zandi, the pattern is not random. He sees it as the continuation of a break that appeared earlier in the year, when the administration escalated reciprocal tariffs.
“If you look at when job growth really came to a standstill, it is back soon after Liberation Day,” he said.
Because these firms often lack the financial cushions that larger corporations can draw upon, payroll becomes the most immediate and often the only mechanism through which they can respond to rising input costs. The result, Zandi argues, is a labor market in which the earliest fractures appear among precisely the kinds of employers most sensitive to policy and price shifts. Those fractures then begin to ripple outward, first through hiring freezes and only later, if conditions worsen, through broader layoffs.
“That would suggest that there are layoffs coming,” he said. “They seemingly have not occurred yet.” The disconnect between rising layoff announcements and historically low unemployment-insurance claims feels increasingly “incongruous” to him, and he suspects one reason may be that early cuts are falling on higher-income workers who receive severance or wait longer before filing for benefits, obscuring the first phase of the weakening.
Zandi regards this spending as one of the last buffers preventing the slowdown from becoming self-reinforcing. Lower- and middle-income households remain stretched, however, and he warns that any further erosion in hiring could push them to retrench. Because these households account for a large share of day-to-day consumer activity, even a modest pullback could turn the current pattern of weak hiring into a contraction.
The chances of the Fed delivering its third interest rate cut of the year tomorrow are 90%, according to the CME FedWatch Fed funds futures index. Economists expect the Fed to deliver a kind of hawkish cut, a move that acknowledges the weakness in hiring but refrains from promising a sustained cutting cycle.
For the Fed, the challenge is to articulate a strategy that acknowledges the unmistakable weakening Zandi has been warning about without assuming that the slowdown has already reached a stage requiring an aggressive response.
For Zandi, the concern is more immediate: that the softening now visible in small-business payrolls, layoff announcements, and early demographic stress will eventually coalesce into the layoffs he believes are coming.
“If we’re not in a jobs recession, we’re close,” Zandi said.
