US Labor Market in Full-Blown Recession: Moody's Economist Warns of Possible Economic Downturn

The US labor market is in a recession, with a sharply slowing job market and rising unemployment, according to Moody's economist Mark Zandi. He believes that if businesses start laying off workers, the labor recession could impact the overall economy. Zandi compares the current state of the economy to someone clinging to the edge of a cliff, warning that a few more setbacks could send the economy over the edge.

The latest employment snapshot from the Bureau of Labor Statistics paints a bleak picture of the current state of the economy under President Donald Trump. The August jobs report showed a sharply slowing labor market, with nonfarm payrolls coming in well below forecasts and unemployment rising to 4.3%, the highest level since 2021 [1]. This negative job growth marks a significant setback, as the economy lost 13,000 positions in June, the first time in nearly four years.

Moody's economist Mark Zandi has been closely monitoring these developments and sees a potential bump in the road coming on September 9, when preliminary benchmark revisions come in for earlier in 2025. The expected markdown in job additions is significant, and Zandi warns that if businesses start laying off workers, the labor recession could impact the overall economy. He compares the current state of the US economy to someone clinging to the edge of a cliff, noting that a few more setbacks could send the economy over the edge [2].

Zandi also noted that these downward revisions and outright job losses are coming without a significant increase in layoffs. If companies were to accelerate on that front, Zandi says it would worsen the labor recession and possibly impact overall economic strength. "If businesses start laying [people] off, then I think this will not just be a jobs recession, will be an overall economic downturn," he told Business Insider [2].

The US dollar broadly weakened on Friday after the softer-than-expected jobs report, stoking concerns about a labor market slowdown. The dollar index, which measures the dollar’s strength against six major foreign currencies, dropped 0.7% and hit its lowest level in over a month [3]. The dollar weakened on signs of a slowdown and expectations for the Federal Reserve to lower interest rates.

Investors and financial professionals must remain vigilant as the US economy teeters on the edge of a cliff. The labor market's deterioration underscores the extent to which consumers and businesses are struggling to accommodate the weight of tariffs, stubborn inflation, the decline in America’s crucial immigrant workforce, and overall economic uncertainty. The Federal Reserve is expected to lower interest rates further to mitigate the impact, but the extent to which this will be effective remains to be seen.

References:
[1] https://www.cnn.com/business/live-news/us-jobs-report-august-2025
[2] https://www.businessinsider.com/labor-recession-forecast-us-economy-august-jobs-report-mark-zandi-2025-9
[3] https://www.cnn.com/business/live-news/us-jobs-report-august-2025