The US economy may already be in recession, says Moody's Analytics chief economist. According to Marek Zandi, this is indicated by the indicator developed by his team, which has been signaling an economic slowdown since January. The expert emphasizes that the risk of further economic decline is “disturbingly high.”
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Zandi drew attention to the so-called Vicious Cycle Index (VCI), an economic climate indicator that is based on the analysis of changes in unemployment and professional activity. According to him, VCI has been above the recession level since January and remained at that level in February and March.
The economist emphasizes that this parameter gives more precise signals than the traditional Sahm rule – referring to the three-month average unemployment rate in the US – because it also takes into account people who have completely withdrawn from the labor market.
VCI as a key slowdown signal
The VCI, developed by Zandi and his team, works on a similar principle to the Sahm rule, but takes into account additional variables.
Rule of Sahm indicates a recession when the three-month average unemployment rate increases by 0.5 percentage points. relative to the lowest level of the last 12 months.
VCI and analyzes a five-year moving average of the labor force participation rate, which has been systematically declining for two years. According to Zandi, this indicator better reflects the situation on the labor market, also taking into account people who have given up looking for employment.
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“The risk of recession is high”
“The risk of recession remains alarmingly high and the chances of an economic downturn in the coming year are almost equal,” Zandi wrote on the X platform.
According to the economist, VCI exceeded the key level already in January, which suggests that from then on the US economy may be in a recession phase.
The labor market and the price of crude oil under the microscope
Despite surprisingly good results on the labor market in March, when the US added 178,000. positions, earlier months raised concerns about a slowdown. In February, the number of employees decreased by 92,000, and companies are increasingly limiting recruitment and looking for savings.
Zandi noted that there has been little employment growth since Emancipation Day last year, and if it weren't for the health care sector, the economy would be losing jobs.
The increase in oil prices may also result in a further weakening of the economic situation. According to Zandi, Brent crude oil prices exceeding $125. for a barrel may trigger mechanisms leading to recession. The price approached that level last month, but then dropped to around $110. per barrel.
The chief economist at Moody's Analytics emphasizes that the economic effects of the conflict with Iran, which broke out at the end of February, may further burden the American economy.
