US job cuts: Moody's chief economist Mark Zandi sees 'big warning' signs in June data. Here's why he's worried about the labour market

The June US jobs report may not be as encouraging as it first appears, according to Moody's Analytics Chief Economist Mark Zandi, who has warned that several underlying indicators point to a weakening labour market despite a fall in the unemployment rate.

In a series of posts on X, Zandi argued that the latest employment figures have been interpreted too positively, saying the decline in unemployment was largely driven by a sharp fall in labour force participation rather than stronger hiring.

His remarks come as economists continue to debate the health of the US economy amid slowing job growth and uncertainty over future employment trends.

Mark Zandi questions strength of June jobs report

Zandi said the headline employment figures masked broader signs of weakness across the labour market.

While payroll employment increased modestly in June, he noted that job gains for previous months had been revised downwards and that much of the hiring was concentrated in the healthcare sector instead of being spread across multiple industries.

In a post on X, Zandi wrote: "Not only did employment as measured by the payroll survey post a small gain in the month, but previous month's gains were revised much lower, and the bulk of the job gains were in healthcare. And employment as measured by the household survey fell sharply again, as it has all year."

Why the fall in unemployment may be misleading

Although the unemployment rate edged lower in June, Zandi argued that the improvement does not necessarily reflect a stronger labour market.

Instead, he said the decline coincided with a significant fall in labour force participation, meaning fewer people were actively looking for work.

He also pointed to declining participation across several demographic groups, particularly among younger workers.

Zandi wrote: "The unemployment rate ticked lower, but only because labour force participation is in free-fall. Participation is down across most demographic groups, especially among workers under 35. Employment-to-population ratio for prime-age workers also fell."


He acknowledged that some of the decline may be overstated but said the overall trend remains concerning.

Household survey paints a weaker picture

A key concern raised by Zandi relates to the household employment survey, which has shown falling employment throughout the year.

Unlike the payroll survey, which measures jobs reported by employers, the household survey measures the number of people who are employed.

According to Zandi, the continued decline in household employment suggests the labour market may be weaker than headline payroll figures indicate.

Adjusted unemployment rate exceeds 5%, says Zandi

Zandi also highlighted what he calls the "vicious-cycle measure", an adjusted unemployment indicator that accounts for long-term labour force participation trends.

According to his analysis, the adjusted unemployment rate rose above 5 per cent in June.

He wrote: "You may recall our vicious-cycle measure, which adjusts the unemployment rate for trend labour force participation. It rose to over 5% in June. That is, without the outsize decline in participation, unemployment would be over 5%. As I said, the commentary on the June report was much too sanguine."

The measure suggests that the labour market could be weaker than the official unemployment rate indicates.

Other economists also express concerns

Zandi is not alone in questioning the June employment figures.

Laura Ullrich, senior economist at Indeed Hiring Lab, suggested that falling labour force participation may reflect a shrinking supply of workers rather than weaker demand from employers.

She noted that businesses may still be looking to hire but are finding fewer people available for work.

Meanwhile, ARK Invest founder Cathie Wood described the June jobs report as "weird", arguing that discrepancies between the payroll and household surveys make it difficult to assess the true condition of the labour market.

She also suggested that private-sector employment data could provide a clearer picture than government statistics alone.

Why the June jobs report matters

The June employment report is closely watched by investors, businesses and policymakers because it provides important clues about the health of the US economy.

Signs of slowing employment growth could influence expectations around future interest rate decisions, consumer spending and overall economic activity.

While the headline unemployment rate suggested continued resilience, economists such as Mark Zandi believe the underlying data points to a labour market facing increasing pressure.

Inputs from TOI