Top economist Mark Zandi cautions that numerous Americans are "already living on the financial edge" within a K-shaped economy, providing "fodder for a recession." 

The grim evaluation arrives as job creation has halted, joblessness is increasing—particularly among the most susceptible employees—and redundancy declarations are accumulating. According to Zandi, the subsequent phase is already apparent: “If we actually do see layoffs pick up,” he informed Coins2Day, “then it certainly would be a jobs recession.”

Zandi arrived at that conclusion prior to the administration publishing its heavily postponed JOLTS report Tuesday, yet the official figures largely corroborate the downturn he's been observing via proprietary information. Since the warmer months, employment opportunities have increased by merely several hundred thousand and stay significantly beneath the peaks witnessed during the pandemic's fervor. Dismissals saw a minor increase, while voluntary departures decreased, indicating that employees are growing reluctant to abandon their present roles. Recruitment, concurrently, has stabilized at 3.2%, a rate aligning with businesses that aren't actively reducing personnel but are also not augmenting their staff any longer: a “low hire, low fire” marketplace. 

While official figures suggest a gradual slowdown, private metrics reveal a more pronounced trend. ADP's report for November report indicated that private sector companies shed 32,000 positions, marking the most significant reduction in over two years. The majority of these job cuts were concentrated within small businesses, which saw 120,000 roles disappear. In contrast, larger corporations continued to expand their workforces.

According to Zandi, this recurring trend isn't coincidental. He views it as a direct result of a disruption that emerged at the beginning of the year, coinciding with the administration's intensification of retaliatory trade duties.

“If you look at when job growth really came to a standstill, it is back soon after Liberation Day,” he said. 

These companies frequently don't possess the financial reserves that bigger enterprises can access, making payroll the most pressing and frequently the sole method by which they can address escalating expenses for materials. Zandi contends that this leads to a job market where the initial signs of strain emerge among the very types of businesses most susceptible to changes in regulations and pricing. These strains then start to spread, initially via restrictions on new hires and only later, should circumstances deteriorate, through more widespread dismissals.

Layoffs are coming, Zandi warns

So for Zandi, if ADP offers a snapshot of the present, the data from Challenger, Gray & Christmas hints at what may lie ahead. Employers have announced 1.1 million layoffs this year, a figure surpassed only during the pandemic shock of 2020 and the depths of the Great Recession. These announcements are global, and not all will materialize as U.S. Cuts, Zandi advised, yet he considers their scale meaningful because they reflect decisions made months in advance of actual separations. 

“That would suggest that there are layoffs coming,” he said. “They seemingly have not occurred yet.” The disconnect between rising layoff announcements and historically low unemployment-insurance claims feels increasingly “incongruous” to him, and he suspects one reason may be that early cuts are falling on higher-income workers who receive severance or wait longer before filing for benefits, obscuring the first phase of the weakening.

Additional strain is also mounting in segments of the workforce that usually signal wider difficulties. Zandi noted that joblessness has increased for young workers and for Black workers, two demographics that typically experience setbacks sooner in an economic downturn. Sectors dependent on immigrant workers, such as building, transportation, and farming, are facing with a tighter supply of workers due to removals, intensifying pressure on smaller enterprises. 

Concurrently, initial investigations into AI uptake indicate that entry-level hiring within the technology and information sectors is undergoing transformation, a phenomenon Zandi posits might be underestimated in conventional data but is nevertheless beginning to impact the allocation of employment prospects. All these forces combine to create what he perceives as a labor environment that is deteriorating gradually yet in fundamentally important ways.

The sustained strength of spending among households with higher incomes is what has prevented the labor market from descending into a full-blown downturn, notwithstanding the persistent elevated borrowing expenses and the fact that prices haven't entirely stabilized. This resilience, in the face of increasing layoff notifications and a slowdown in recruitment, illustrates the degree to which more affluent consumers have remained protected following a year of substantial stock market appreciation, partly driven by the surge in AI. Furthermore, it serves as the most evident indication that the “K-shaped economy” that this trend hasn't diminished but rather intensified, with wealthier families benefiting from financial market performance while workers in lower and middle-income brackets confront increasing pressure.

Zandi views this expenditure as one of the final safeguards against the economic deceleration becoming self-sustaining. Nevertheless, households with lower and middle incomes continue to face financial strain, and he cautions that any additional decline in employment could compel them to cut back. Given that these households constitute a significant portion of routine consumer behavior, even a slight reduction might transform the present trend of sluggish hiring into a downturn.

A pivotal moment for the Federal Reserve

The Federal Reserve is debating over an interest rate cut Monday and Tuesday, stepping into this exact situation, a decision that signals the central bank's increasing worry that the job market might worsen more rapidly in early 2026 if it isn't bolstered presently. 

According to the CME FedWatch Fed funds futures index, there's a 90% likelihood that the Fed will implement its third interest rate reduction of the year tomorrow. Analysts anticipate the Fed will enact a somewhat aggressive cut, recognizing the sluggishness in job growth without committing to a continuous series of reductions.

The reason for this is the exceptionally strong disagreement within the committee. Bank of America economist Aditya Bhave wrote in a research note that Fed Chair Jerome Powell is facing “the most divided committee in recent memory.” Certain members feel that job losses are becoming more likely and therefore strongly advocate for additional support. Conversely, others are still persuaded that the economy possesses sufficient inherent resilience, making substantial easing ill-advised and possibly leading to price increases. 

For The Federal Reserve, the difficulty lies in presenting a plan that recognizes the clear deterioration Zandi has been cautioning against, while not concluding that the deceleration has already progressed to a point demanding a forceful action. 

Zandi's apprehension is more pressing: he worries that the current signs of weakness in small-business hiring, redundancy notices, and early indications of demographic strain will ultimately combine to produce the job cuts he anticipates.

“If we’re not in a jobs recession, we’re close,” Zandi said.