The U.S. economy may not officially be in a recession yet, but growing signs of labor-market weakness are raising concern among economists. Moody’s Analytics chief economist Mark Zandi said recent employment data shows that more than half of U.S. industries are already reducing headcount, a pattern historically associated with economic downturns.

While headline employment numbers have not yet confirmed a recession, analysts say underlying trends suggest momentum in the labor market is fading.

Job losses across industries raise warning signs

Zandi noted that employment declines across a broad range of industries can be an early indicator of recessionary pressure. Historically, when more than half of industries tracked in payroll surveys begin shedding workers, the economy has either entered or been close to entering a downturn.

Recent data shows payroll growth slowing significantly. Job gains totaled just 73,000 last month, well below expectations, while previous months were revised sharply lower. The average increase over the past three months has fallen to roughly 35,000 jobs, a pace economists consider weak for a growing economy.

According to Zandi, continued downward revisions to payroll figures may eventually reveal that employment is already contracting, though official confirmation typically comes later through analysis by the National Bureau of Economic Research (NBER).

Slow job growth adds to recession concerns

Economists emphasize that recessions are often recognized only after multiple economic indicators deteriorate simultaneously. The NBER defines a recession as a widespread and sustained decline in economic activity lasting several months, evaluated through metrics such as employment, income, consumer spending, and industrial production.

While payrolls have not yet shown consecutive monthly declines, growth has slowed markedly since the spring. Analysts say this slowdown, combined with weak hiring momentum outside sectors like healthcare, could signal weakening business demand.

Federal Reserve officials have also warned that large revisions to economic data often occur during turning points in the business cycle, making early signals harder to interpret in real time.

Labor market shows mixed signals despite slowing momentum

Despite rising concern, several indicators suggest the economy has not fully tipped into recession territory. Weekly jobless claims remain relatively stable, and the unemployment rate has hovered between 4% and 4.2% for more than a year.

The Atlanta Federal Reserve’s GDP tracker still projects moderate economic growth, with third-quarter output expected to expand at around 2.5%. However, that pace represents a slowdown from earlier in the year, reinforcing uncertainty about the broader outlook.

Zandi cautioned that the unemployment rate may be a less reliable signal at the moment, partly because changes in labor-force participation, including shifts in the number of foreign-born workers, are affecting headline statistics.

Economists divided over what the data means

Wall Street analysts remain split on whether the slowdown reflects weakening labor demand or broader structural changes in the workforce. Some firms argue that supply factors, such as immigration policies, are influencing hiring trends, while others see declining demand as the primary driver.

UBS analysts have described the labor market as approaching “stall speed,” citing shorter workweeks and slower hiring activity. JPMorgan economists similarly warned that sustained declines in labor demand historically precede periods of retrenchment, when businesses begin cutting costs more aggressively.

Still, not all economists agree that a recession is imminent. Some believe the economy could stabilize if policy pressures ease or if growth rebounds in key sectors.

Outlook remains uncertain as policymakers monitor trends

For now, economists stress that the U.S. economy has not yet met the technical definition of a recession. However, the growing number of industries cutting jobs and the sharp slowdown in hiring are closely watched indicators that could shape expectations in the months ahead.

Zandi said conditions could still improve, but acknowledged that the likelihood of a downturn appears to be rising as economic momentum cools. As policymakers and investors continue analyzing labor-market data, upcoming employment reports and revisions may provide clearer insight into whether the economy is approaching a broader contraction.