This is the key factor that could push the U.S. economy over the edge.
Transcript:
CAROLINE WOODS: Your view has been that the US economy will avoid a recession, but that it will be close or a close call. What’s the variable that could tip us into recession and in the next breath, what’s really keeping us afloat? Layoffs?
MARK ZANDI: I mean, I think the firewall between the soft economy that appears to be weakening and recession is that businesses at this point have not laid off workers. They’ve done everything else but that they’ve stopped hiring. So hiring rates are very low. They’ve cut back hours worked. The job growth has come pretty much to a standstill, except for a couple sectors like health and education, parts of government. So the last thing they’ll do is lay off workers. And I think they’re very loath to do that. They’ve been through most businesses, have been through some pretty severe labor shortages since even before the pandemic. And I don’t think they want to get wrong footed, particularly in the context of immigration policy, which has a lot of immigrants leaving the labor force and not working. So I think, you know, I think the key here is layoffs. They’re low. And as long as that’s the case, we’ll avoid recession. That’s my baseline. But, you know, it’s a very tenuous kind of situation. And if we see any pullback in consumer spending, you know, I do think those layoffs will begin and will be in recession. So it’s going to be very, very close. But that’s the key variable. It’s layoffs.
CAROLINE WOODS: Are you getting any signals that we could be close to that?
MARK ZANDI: Yeah I mean I think everything it’s really, American consumers have really kind of are now very cautious. I mean, if you go back over the period from the end of the pandemic up until the end of last year, consumers were out spending with a fair amount of gusto. Spending growth was strong and very consistent since the beginning of the year. Consumer spending has gone flat now. Flat consumer spending I think, isn’t enough to push businesses to start laying off workers. But if the tariff price increases start to kick in, undermine real incomes and purchasing power, and consumers actually do start to pull back on their spending even a little bit. That’s when businesses may decide, hey, you know, look, we’re going to have to reduce payrolls. We’re going to lay off some workers. And the thing about layoffs that’s a bit disconcerting is, you know, once one company in an industry lays off, you tend to see all the other companies in that industry lay off as well. And you can go from no layoffs to a lot of layoffs pretty quickly. And, you know, I think we’re right on the edge here. You know, hopefully American consumers hang tough, continue to do their thing. Don’t pull back. And we’ll avoid that downturn. But if they do pull back even a little bit and businesses respond by laying off, you get into that kind of self-reinforcing vicious cycle called recession.
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