Recession Outlook: 6 Signs in Job Market That Say If Downturn Is Near

There’s a key report investors should be mining this week for recession warnings, according to the investment arm of one notorious market bear.

Hussman Strategic Advisors — the investment advisor led by the famed permabear John Hussman — said it was eyeing a handful of signs of weakness in the coming September jobs report, which markets will be digesting on Thursday.

The report is expected to be in sharp focus for investors, who have been left in the dark on official labor market data during the government shutdown. Many are also concerned about the economic outlook, given key signs of weakness the job market flashed summer.

Hussman’s firm said it was now watching for six signals in the labor market to gauge the risk of a coming US recession. Here are the signs the firm said it would be looking for:

1. If “recession-sensitive” job sectors keep losing jobs

There are key sectors in the economy that have traditionally accounted for more job losses during a recession.

Manufacturing, construction, retail, transportation, professional & business services, and leisure & hospitality are some of the areas that have shown the most weakness in past downturns, according to Bill Hester, a senior research analyst at Hussman Strategic Advisors.

Hester said the firm created a “recession-sensitive sector index,” which shows the 6-month rolling change in job gains among those sectors. The index is currently hovering near 0%, and it’s never turned negative without the economy falling into a downturn, Hester said.

2. If there are two back-to-back months of net job losses

Since 1970, there have never been two straight months when the economy has lost jobs that haven’t been associated with a recession, Hester said.

Here’s what job growth has looked like over the last several months:

July: +73,000 jobsAugust: +22,000 jobs

“With job growth slowing to such a modest pace, the likelihood of two back-to-back negative months is higher than usual,” Hester said.

3. If education and health services jobs keep growing

In the past, job growth in the education and health services sector has “helped to mask weakness” in other areas of the job market, Hester said.

“That’s usually the case at the start of the recessions,” he added, pointing to job growth in that sector so far this year.

That area of the job market has added 521,000 payrolls since January.

4. If AI job losses keep piling up

There’s evidence that AI is already starting to take over some white-collar jobs.

For instance, employers announced 153,074 job cuts for October, marking the worst month for layoffs since 2003, according to Challenger, Gray & Christmas.

Layoff announcements were largely concentrated in the tech sector and fueled by factors like firms integrating AI, the consultancy wrote in a report.

Hussman’s firm pointed in particular to the decline in jobs in the professional & business services sector. The sector accounted for around 13% of GDP in the second quarter, according to data from the Bureau of Economic Analysis.

“Again, we should not be quick to conclude that AI is necessarily the driver of these losses, but it will be important to watch if this pattern continues,” Hester wrote.

5. If government jobs keep declining

Federal employees make up less than 2% of the total workforce — not enough to significantly move the needle on employment trends. But government jobs have historically been a “stabilizing force” in past recessions, offsetting job losses in other areas of the economy, Hester noted.

“If local government payrolls start to decline, and federal and state payrolls continue their current weakening trend (as additional DOGE-related reductions appear in the upcoming BLS reports), the public sector may not provide the cushion it typically has during past downturns,” Hester said.

6. If initial and continuing unemployment claims hit a key threshold

Jobless claims, which are reported weekly, tend to be volatile, Hester said. But when the four-week average of jobless claims has climbed by 90,000 over its 52-week low, a recession has followed in nearly every instance since 1970, he noted.

The current 4-week average in initial claims hovers around 238,000. If that number were to climb above 300,000, that could trigger a recession warning, Hester suggested.

The firm also pointed to the SOS Recession Indicator, which was created by Richmond Fed economists. The indicator says a recession is coming when the 26-week average of the insured unemployment rate rises more than 0.2 percentage points from its 52-week low. That indicator is now “almost halfway” to flashing a recession signal, Hester said.

Hussman, who successfully called the 2000 and 2008 stock crashes, has a reputation for making bold and frequently cataclysmic calls on markets and the economy. In the past, he warned that US stocks could be in their “third great speculative bubble” and suggested there could be as much as 70% downside for the S&P 500.