The U.S. economy faces an “uncomfortably high” 48% probability of slipping into a recession within the next 12 months, according to Mark Zandi, Chief Economist at Moody's Analytics.
Moody’s Predicts 48% Chance Of Recession
Zandi shared this concerning forecast on X, citing Moody’s newly unveiled leading economic indicator, which is derived from a machine learning algorithm. While historically such high probabilities haven’t always led to a recession, the current figure represents an unprecedented level of risk.
His latest warning builds upon his persistent concerns about a deteriorating labor market, which he has described as being in a “jobs recession.”
Shrinking Workforce Signals Looming Economic Recession
Earlier this month, he pointed to revisions in June’s data revealing a shrinking workforce for the first time since 2020. “The US economy has entered a jobs recession,” Zandi reiterated on Sept. 5th, noting that “hiring has flatlined and momentum has all but vanished.”
The Moody’s economist has been sounding the alarm on the economy’s precarious position, famously comparing it to someone “clinging to the edge of a cliff.” He elaborated, “We had 10 fingers on the edge of the cliff a couple months ago, we now [have] seven fingers. A couple more fingers and then we're going over the edge.”
No Layoffs Is A Good Sign
A critical factor for Zandi is the current absence of widespread layoffs. “These downward revisions and outright job losses are coming without a significant increase in layoffs,” he explained. However, this could soon change: “If businesses start laying [people] off, then I think this will not just be a jobs recession, will be an overall economic downturn.”
Further compounding the risk, Zandi had previously assessed that states accounting for nearly a third of the national output were already either in or at high risk of recession, with another third merely holding steady. He particularly highlighted concentrated weakness around the Washington D.C. area, attributing it to significant federal workforce cuts.
Markets Have Factored In The September Cuts
While anticipated interest rate cuts following recent job reports might offer some relief, Zandi cautioned that much of this benefit has already been factored into market expectations. “A lot of the benefit of the lower rates is already in the [market] because investors anticipated the rate cuts,” he stated.
Despite the historical precedent of avoiding recession at this probability level, Zandi’s consistent warnings underscore a deeply concerning outlook for the coming year.
Price Action
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, ended in a mixed manner on Friday. The SPY was down 0.033% at $657.41, while the QQQ advanced 0.44% to $586.66, according to Benzinga Pro data.
On Monday, the futures of the Dow Jones, S&P 500, and Nasdaq 100 indices were mixed.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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