The U.S. job market is sending classic warning signs of an economic downturn, according to Citi Research.
Despite some improvement in August, with the economy adding 142,000 jobs and the unemployment rate dipping to 4.2%, concerns about an impending recession persist.
The hiring pace fell short of expectations, and analysts aren’t reassured by the Federal Reserve’s potential rate cuts on the horizon.
Citi’s chief U.S. economist, Andrew Hollenhorst, emphasized that private-sector hiring, which totaled 118,000 jobs last month, is showing significant weakness.
The three-month moving average dipped below 100,000—its softest stretch since 2012, excluding the pandemic.
Hollenhorst noted that the job market is cooling in a classic pattern that precedes a recession.
Adding to the concern, revisions to earlier reports reveal payroll growth was likely overstated by up to 70,000 jobs per month.
“Data released this week left us more certain that the U.S. economy is headed at least into a substantial slowdown (and more likely a recession), but it is still uncertain as to how exactly the Fed will respond to the deteriorating outlook,” Hollenhorst explained.
Citi forecasts a 125 basis point rate cut this year as part of its base case.
Other warning signs include slowing auto sales and weak home purchases, even as mortgage rates fall.
These trends, paired with a faltering labor market, reinforce Hollenhorst’s long-held cautious view of the economy.
In May, he reiterated his belief that the U.S. is headed for a hard landing, despite Wall Street’s hopes for a softer outcome.
Yet not everyone shares Hollenhorst’s pessimism. Many economists point to low jobless claims, strong corporate earnings, and steady GDP growth as signs the U.S. could avoid a recession.
Retail sales are holding up, and wages continue to rise. Still, recession alarms are sounding elsewhere.
Interactive Brokers’ senior economist, Jose Torres, pointed out that the yield curve, which had been inverted for two years, has recently de-inverted—a signal that has preceded every U.S. recession since 1976.
So, while some data gives hope, history tells a different story. If the job market keeps cooling, business leaders might just be bracing for the storm ahead.
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