Ahead of August Jobs Report, Economists Are Fearing a US Recession Is Now Imminent

As the US economy continues to navigate post-pandemic recovery, the likelihood of a recession is growing. Many experts are focusing on the upcoming August jobs report, which could provide vital clues about the economy’s health. While some remain optimistic that the US can avoid a recession, many warning signs suggest otherwise. As such, businesses and households should prepare accordingly.

One of the main reasons economists are worried about a recession is the labor market. Since early 2023, job openings have decreased significantly, returning to levels not seen since before the pandemic. Unemployment has been rising, and the number of layoffs has been increasing. These trends suggest a cooling job market, which could signal trouble ahead.

Red Flags Abound

The August jobs report is expected to reveal whether this cooling trend continues. If the report shows significant job losses or slowing wage growth, it could be a strong indicator that the US is heading toward a recession.

Another red flag is the increase in consumer loan delinquencies, which have reached levels not seen since 2010. This, combined with depleted pandemic savings and a weakening housing market, has experts on edge. Homebuilder confidence dropped in August, and new housing starts have declined, leading to concerns about a broader economic slowdown.

Seven Indicators Pointing to an Incoming US Recession

Financial experts are also watching seven economic indicators that have historically predicted every recession accurately. Here’s why each indicator is seeing a recession as imminent:

1. Inverted Treasury Yield Curve
   The inversion of the 3-month and 10-year Treasury yield is the deepest it has been since the early 1980s. This signal has accurately forecast every US recession for decades, suggesting that long-term economic growth prospects are weakening.
2. Conference Board Leading Economic Index (LEI)
   The LEI, which aggregates data on manufacturing, stock markets, and consumer sentiment, remains in recessionary territory. Despite some improvement, the index's prolonged decline reflects underlying weakness in key economic sectors.
3. Sahm Rule
   This rule identifies a recession when the unemployment rate’s 3-month moving average rises by 0.5%. Having already triggered, it suggests that the labor market is beginning to contract, historically a reliable sign of an impending downturn.
4. Kantrowitz Rule
   The Kantrowitz Rule, which flags a recession when unemployment rises by 10% year-over-year, is close to triggering. This indicates that the labor market is showing clear signs of stress, with a significant increase in job losses.
5. Sahm Rule+
   This updated version of the Sahm Rule factors in job openings to provide a more comprehensive view of labor demand. Current levels are consistent with every previous recession since 1960, indicating a cooling economy and labor market.
6. Labor Market Composite
   This composite indicator increases the threshold for recession signals from the Sahm and Kantrowitz rules, making it more conservative. However, it has recently entered recession territory, suggesting a weakening labor market is inevitable.
7. Manufacturing Activity
   Manufacturing, a smaller portion of the US economy, is often seen as a bellwether for broader economic trends. Declines in new orders and weakened factory output show

Is a US Recession Imminent?

So, is a US recession imminent? Based on the convergence of economic indicators, the answer appears to be “yes.” While some experts argue that the US economy still has resilience, the combination of a weakening labor market, rising delinquencies, slowing manufacturing, and an inverted yield curve strongly suggests that a recession could be on the horizon. As for timing, many economists believe it could materialize within the next six to twelve months, with the August jobs report serving as a critical inflection point. If the report confirms further labor market deterioration, we could see a downturn sooner rather than later.

For American businesspeople, preparing for this possible recession is crucial. Tightening expenses and avoiding unnecessary expansion could provide a buffer during an economic contraction. Maintaining liquidity and managing cash flow will be essential for weathering uncertain conditions. Businesses should also adapt to changing consumer behavior by focusing on essential goods or services, offering value-based pricing, and streamlining operations. In addition, monitoring supply chains for potential disruptions and ensuring operational flexibility will help minimize economic risks. Although it's impossible to predict the exact timing or depth of the next recession, being proactive and prepared can make all the difference for businesses navigating turbulent times ahead.

Do you agree that a US recession is imminent? Why or why not? Tell us what you think is happening right now.

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