What Recession? It’s Looking Increasingly Unlikely

The few remaining signs that the US economy is headed for a recession are vanishing before our eyes.

Until recently it has been possible to squint at the data and see emerging weakness amid the headlines showing steady job growth. Now three of the most important such signs — downward revisions to the payroll data, a slowdown in rising claims for unemployment insurance, and an imbalance between job seekers and job openings — have withered away. As a result, there is little remaining reason to expect a recession this year, if at all.

Job growth in the private sector has been slowing ever since the Federal Reserve began raising interest rates early last year. In the year leading up to February 2022, the US economy created an average of 620,000 jobs a month. By September of this year, that figure had dropped to 268,000.

Part of this was intentional — the Fed was trying to decrease the pace of job growth — but there were signs that it may have been overdoing it. The first was the record string of negative revisions to private-sector jobs at the beginning of this year.

The Bureau of Labor Statistics sends a survey to more than 100,000 businesses every month asking how many employees they have hired or let go. Many firms respond late or not all. To account for that, the BLS uses a statistical model that estimates what those businesses would have answered based on recent trends. Then, as some late responses arrive, the BLS revises its estimate. If its model is performing well, then the revisions should average out to zero.

But when the economy makes a sharp turn downward, the estimates based on the recent past will tend to be high. That’s precisely what happened at the beginning of 2023: The BLS’s estimate for jobs created in January and February were eventually revised downward by 45,000 and 63,000 respectively.

Job Growth