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- The job market has impressed recently, but there are worrying signals beneath the surface.
- Wall Street forecasters have pointed to four signs of weakness flashing in the US labor market.
- That weakness heightens recession odds, especially if unemployment begins to rise meaningfully.
Today's job market looks to be on solid footing, but there are subtle signs that hiring is starting to weaken, upping the odds that a recession strikes.
The economy added a blowout 303,000 jobs last month, and the unemployment rate remained near historic lows at 3.9%.
But it's unclear how long that strength will hold up, especially as financial conditions in the economy look poised to remain tighter for longer while inflation is sticky. The job market is already flashing key signs of weakness, and a hiring slowdown could be around the corner, Wall Street strategists have warned.
Here are four signs the stellar US job market may be about to stumble:
1. Unemployment trends are mirroring past recessions
The unemployment rate remains near historic lows, but the number of jobless Americans has been rising steadily higher over the past year — and is now close to triggering a classic recession indicator. The three-month moving average of the unemployment rate has risen 30 basis points above its 12-month low. That's 20 basis points away from triggering the Sahm rule, a highly accurate indicator that the economy is in the early stages of a recession.
It's also dangerously similar to what occurred prior to the last four recessions, according to top economist David Rosenberg.
"Even the famed Sahm Rule on unemployment trends is right where it was in March 2020, November 2008, March 2001, and September 1990! Delayed is not derailed," Rosenberg said in a client note on Monday, referring to the odds of a recession.
2. Layoff announcements are rising
Firings could pick up in the coming months, as more firms look poised to reduce headcount.
The total layoff rate remained near historic lows in February, clocking in at 0.9%. But job-cut announcements rose to 257,254 over the first quarter, according to the career transitioning firm Challenger, Gray & Christmas. That's 120% higher than what companies announced the previous quarter, the firm said in a recent report.
Cost-cutting was the main reason firms were looking to let go of their workers, accounting for 26% of planned layoffs in the first quarter. 18% of layoffs were attributed to business restructuring, and 9% were attributed to "market conditions," the report found.
3. Lack of growth in full-time jobs
The economy added more and more jobs every month — but there's evidence that most of the jobs being created are merely part-time gigs in 2024. The number of workers who typically work full-time dropped 1% year-over-year in March, according to the Bureau of Labor Statistics. Meanwhile, the average work week among all employees has dropped to around 34 hours — a sign part-time work is making up a larger share of the labor market.
"We have not created one net new full-time job," Rosenberg said in a March interview with Business Insider. He predicted the unemployment rate could rise to around 5% by the end of the year.
"I have a tough time grappling with the overwhelming consensus view that we gave some sort of terrific labor market when all we've accomplished is [turning] this thing into a part-time economy."
4. Businesses are less keen to hire
Employers announced plans to hire just 36,795 workers in the first quarter, according to Challenger, Gray & Christmas, a 48% plunge from the number of planned hirings that were announced last year.
Small business optimism, meanwhile, plunged to its lowest level since 2012 last month, and just 11% of small business owners plan on hiring over the next three months, according to the latest jobs report from the National Federation of Independent Business. That's the weakest hiring intentions have been since the pandemic, the report said.
The risk of a coming recession could rise if the job market continues to slow, some forecasters have warned. Gary Shilling, a legendary market commentator who called the dot-com bubble, warned the US was still at risk of tipping into a recession later this year, even if the job market looks strong at the moment.
"You haven't had that weakness in labor markets that I think you normally would have had," he said in a recent interview with CNBC. "That doesn't mean we won't have it, but it means, whatever it is, it's delayed," he warned.