Moody's Chief Economist Warns US Economy On 'Precipice Of Recession' As Tariffs, Labor Shortages Trigger Market Selloff

Moody‘s Analytics Chief Economist Mark Zandi warned on Sunday that the American economy stands “on the precipice of recession” following last week’s disappointing economic data releases that sent major indexes tumbling.Economic Data Points To Contraction“The economy is on the precipice of recession. That’s the clear takeaway from last week’s economic data dump,” Zandi wrote on X. “Consumer spending has flatlined, construction and manufacturing are contracting, and employment is set to fall.”July’s jobs report showed just 73,000 new positions added, well below the expected 110,000. Unemployment rose to 4.2% while wage growth remained elevated at 3.9% year-over-year. The report included massive downward revisions of 258,000 jobs for May and June combined.Tariffs, Immigration Policy BlamedZandi attributed the economic weakness to “increasing U.S. tariffs and highly restrictive immigration policy.” He explained that tariffs are “cutting increasingly deeply into the profits of American companies and the purchasing power of American households.”The economist noted that while unemployment remains low, “labor force growth has gone sideways” due to a shrinking foreign-born workforce and declining participation rates. He highlighted an “economy-wide hiring freeze, particularly for recent graduates, and the decline in hours worked.”Fed Policy Pivot ExpectedThe weak data has strengthened calls for Federal Reserve policy changes. Fundstrat’s Tom Lee argued the historic job revisions indicate “the labor market is further away from Fed mandate than Fed realizes,” suggesting a policy pivot could support higher price-to-earnings ratios.Markets now fully price in two rate cuts by December, with September odds at 76%. Two-year Treasury yields plunged 22 basis points to 3.75% following Friday’s data.Market Impact WidensMajor indexes posted sharp declines on Friday. The SPDR S&P 500 ETF SPY fell 1.60% to 6,238.01, while the Invesco QQQ Trust QQQ dropped 1.96% to 22,763.31. The SPDR Dow Jones Industrial Average ETF DIA declined 1.23% to 43,588.58.Goldman Sachs warned of potential benchmark revisions showing 550,000 to 950,000 fewer jobs when preliminary data releases on September 9, representing the largest adjustments outside recessions since 1968. Dave Ramsey's 3-Step Escape Plan From The Paycheck-To-Paycheck Trap: ‘You're Not Broke Because You Don't Make Enough…' Photo courtesy: Shutterstock