Does Job Market Weakness Signal a Recession is Coming? What Economists Say

Friday’s highly anticipated anticipated jobs report has economists questioning whether the U.S. economy is chugging along well, or if it’s about to tip into a recession. 

The economy added 142,000 jobs—far from mass layoffs but below the 161,000 forecasters had expected. The unemployment rate fell to 4.2% from 4.3% in July, not high by historic standards, but high enough that an important recession alarm continued to flash. 

The economy has avoided a long-predicted recession but is grinding under the weight of high interest rates set by the Federal Reserve. Central bankers set their benchmark interest rate at record highs to cool the economy and slow inflation by discouraging borrowing and spending. 

Fed officials have indicated they plan to cut the Fed’s benchmark interest rate later this month to stave off possible job losses. 

Here’s how experts interpreted the mixed data.

Recession Unlikely As Long As Economy Keeps Adding Jobs

Eddy Elfenbein, a blogger and portfolio manager, focused on the fact that the economy was continuing to add non-farm payroll (NFP) jobs, not lose them as one would expect if a recession were underway.

“Reminder: Recessions usually show big NFP losses, not gains of 142k,” he posted on X.

Jack Kleinhenz, chief economist at the National Retail Federation, said the jobs data was good enough to support the idea that the economy was avoiding a recession, especially against the backdrop of other data showing falling inflation and healthy spending by consumers. 

“The U.S. economy is clearly not in a recession, nor is it likely to head into a recession in the home stretch of 2024,” Kleinhenz wrote in a commentary. “Instead, it appears that the economy is on the cusp of nailing a long-awaited soft landing with a simultaneous cooling of growth and inflation.”

Engine Is Running, But There Are Funny Noises Under The Hood

One aspect of the jobs report looked ominous to James Knightley, chief economist at ING. Full-time employment is falling, while part-time employment is rising. Part-time employment was up 3.8% over the year in August, while full-time employment was down 0.8%.

“Full-time versus part-time employment is showing a big divergence, which tallies with the idea that the U.S. is adding largely lower paid, part-time jobs and is losing full-time, well-paid jobs, primarily through attrition—not replacing retiring or quitting workers,” Knightley wrote in a commentary. “Every recession starts this way, unfortunately. The easiest way to cut costs is not to replace workers, but if everyone is doing that, then the economy slows and companies start making actual cuts down the line.”

Jim Reid, a research strategist at Duetsche Bank, noted that recessions typically start in a month when the economy loses jobs, and that didn’t happen in August, which showed an acceleration of job growth from a slump in July. However, he said, that’s no reason for complacency.

“The good news is that we haven’t hit that level in this cycle and the slowdown last month could have been mostly weather-related,” he wrote. “The bad news is that several other (but not all) measures of employment suggest a continued slowdown and more importantly … when you do get the first negative print, it tends to happen out of nowhere and tends to be the start of a trend.”

The next few months of job reports could provide more clarity on whether the economy is faltering, or whether we’ll have a “soft landing” rather than a crash from the recent period of high inflation. And those reports could be something of a roller coaster ride.

‘The closer we get to zero the more worried we should be,” Reid wrote. “If we stay comfortably above +100k, we should roll all worries to the next month.”