Is the Labor Market About to Tip Us Into Recession?

Key Takeaways

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  Layoffs are the economy’s primary recession risk

  “Zandi, I think hit the nail right on the head. Layoffs are the biggest concern. What we're seeing in the labor market is a slowdown of the gears. If workers go from job to job to unemployment to job again, mobility is everything for workers. Layoffs would just dump enough workers into unemployment in a labor market that's already slowly churning, and it could lead to a terrible recession quite quickly.”

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  Labor market gears have slowed for three years

  “If you think of the back of a watch and you turn it over and you see the gears rotating and the cogs hitting, that's how you should picture the labor market. We have now three years of data showing just how much those gears have slowed. It's not something that we typically and historically see in the unemployment rate, but we're not seeing now. You can look at hiring, you can look at quits, you can look at the three month growth in wages. They all point to a decline in labor market mobility.”

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  The US economy shed jobs in four months last year

  “One data point, one jobs report does not make or break the labor market. What's more concerning for me is that the economy shed jobs in four months of last year. And in fact, we've seen these numbers keep on getting revised down. It's hard to tell how close we are to that point and if we're actually approaching it, but the gears of the labor market have clearly slowed.”

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  Increasing inflation threatens to force higher interest rates

  “Consumer prices rose 3.3 percent year over year in March. That is the biggest increase we've seen since 2024. If inflation continues to climb, the Fed may have to respond by raising rates, which would only add more strain. With all eyes on the labor market, we thought it was a great time to bring in our resident labor market expert.”

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  Tight immigration policies risk slowing labor force growth

  “Several forces are converging that could reshape employment in a meaningful way. First, AI is already starting to show up in the data, emerging as the top cited reason for planned layoffs last month. Second, the Trump administration is tightening immigration, which has historically been a key driver of growth for the US labor force.”

Episode Description

Ed Elson and Scott Galloway are joined by Kathryn Anne Edwards to break down the cracks in the labor market and unpack whether more layoffs are on the horizon. They discuss how shifting immigration trends are reshaping the jobs market and why AI is only one factor behind the challenges young workers are facing. Kathryn Anne Edwards is a PhD economist and economic policy consultant. She writes a weekly column on the economy for Bloomberg and is the host of the Optimist Economy podcast. Get your tickets to the Prof G Markets tour  Subscribe to the Prof G Markets Youtube Channel  Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing Markets@profgmedia.com Learn more about your ad choices. Visit podcastchoices.com/adchoices