Here are the top recession indicators economic forecasters are watching for
The US added just 73,000 jobs for the month, while job gains for May and June were revised downward by a combined 258,000. Besides revisions that took place during the pandemic, that was largest two-month downward revision in about 46 years, according to an analysis from Morgan Stanley.
To markets, the message is getting clearer: the US economy is on shakier footing than originally thought — and the odds of a recession might be higher despite most forecasters still calling for a soft landing in 2025.
"The economy is on the precipice of recession. That's the clear takeaway from last week's economic data dump," Mark Zandi, the chief economist at Moody's wrote in a post on X over the weekend, pointing to weaker jobs data in a separate post.
"There was a definite narrative shift in the economics community on Friday given the severity of the payroll revisions for May and June," Kevin Gordon, a senior investment strategist at Charles Schwab, wrote in a note on Monday.
Economists are now focusing on a handful of key indicators in the coming months that could be early warning signs of a recession around the corner.
The next jobs reports are key
The job market is now in the spotlight.
Any additional signs of weakness could send a strong signal that the economy is turning a corner into a recession, Schwab's Gordon said.
"As always, no single report should be obsessed over or extrapolated; but if we continue to see a sharp slowdown in job growth and drift higher in the unemployment rate—consistent with the trends from May to July—it would bring forward the possibility that recessionary conditions are forming quickly," he added.
Economists will be sifting through one more month of labor market data before the Fed's next policy meeting in September, when the central bank is expected to trim interest rates by 25 basis points.
Economists at Goldman Sachs said they believed the US job market was now approaching "stall speed" — a state where the labor market begins to weaken in a "self-reinforcing fashion."
The bank added that its estimates of underlying jobs growth had "plummeted" as a result of the downward revisions, which were on par with other two-month payrolls revisions that have been associated with recessions in the past:
The magnitude of the latest drop implies a 9 percentage point increase in the risk of a coming recession, Morgan Stanley economists wrote.
Consumer spending
Wall Street is also on high alert for signs that Americans are reining in their spending.
The view that the US economy is on solid footing is starting to look "rather perilous," according to Michael Brown, a senior research strategist at Pepperstone, given that a weaker job market could cut into consumer spending in the coming months.
Americans are already beginning to tighten their wallets. Though consumer spending ticked higher overall in June, personal consumption expenditures on durable goods, one measure of how much Americans are spending on items, declined to $2.24 trillion in June, down around $40 billion from its peak in April, according to the Bureau of Economic Analysis.
The Institute for Supply Management Services Index also ticked lower to 50.1 from 50.8, in July, a sign Americans are beginning to pull back on services spending as well, according to Oliver Allen, a senior US economist at Pantheon Macroeconomics.
"Spending on services has already slowed significantly from its solid pace last year, and the clear deterioration in the labor market and drag on real incomes from tariffs suggest a marked recovery is unlikely," Allen wrote in a note, though added that he believed a "stagnation" was more likely in the coming months than a collapse in spending.
"Consumer spending has flatlined, construction and manufacturing are contracting, and employment is set to fall. And with inflation on the rise, it is tough for the Fed to come to the rescue," Moody's Zandi wrote on X.
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