For a time, not too long ago, it was the central question animating economic forecasts and bets laid by investors in financial markets: Will the U.S. economy avoid a recession?
Now, for many in the business world, that question feels almost passé, part of an earlier, more fretful era of narratives.
After a superlative run of hovering below 4 percent for more than two years, the unemployment rate — at 4.2 percent — has ticked up since last spring. But only by a bit so far; the December reading will come on Friday. While hiring has slowed, layoffs remain low by long-term standards.
Inflation, having calmed substantially, is still being eyed warily by the Federal Reserve, which began steeply raising interest rates in 2022 to combat price increases. But at three consecutive meetings in the final months of 2024, the Fed slightly lowered the key interest rate it controls — an attempt to surgically take some pressure off commercial activity and support employment.
Predictions of a downturn, once omnipresent, were mostly absent from the year-ahead forecasts that major financial firms typically send around to clients over the holidays.
Near the start of 2024, Jeremy Barnum, the chief financial officer at JPMorgan Chase, told listeners asking about U.S. economic vitality during a conference call, “Everyone wants to see a problem — but the reality is we aren’t seeing any yet.”
In the opening days of 2025, conditions appear similar: Even as worst-case-scenario fears of an imminent recession with mass layoffs have largely subsided, anxious recalculations of fresh risks by analysts still abound.
President-elect Donald J. Trump, for instance, continues to threaten that upon taking office he will institute a worldwide wave of large tariffs — import taxes that many economists worry could spark inflation again if carried out rashly. It is also unclear whether Mr. Trump will pursue the maximalist deportation of undocumented immigrants and deep cutbacks in border crossings that he often promised while campaigning — a pledge that, if kept, could reduce both hiring and labor supply in several sectors.
But much of the lingering anxiety about where the labor market will land has less to do with potential political impacts than with increasing uncertainty regarding the underlying rhythm of the business cycle.
There is a hope, among Wall Street fund managers and labor economists alike, that hiring can remain steady and that — in defiance of the usual odds — the unemployment rate can sustain its tame levels for the foreseeable future.
Traditionally, streaks of economic growth in America have been subject to relatively predictable sine-wave-like dips: Businesses, after being overly optimistic about conditions, find they may be overextended and pull back on investment and hiring; consumer confidence wanes as finding work gets harder; then overall spending and production decrease while bankruptcies and unemployment spike. Finally, after debts are squared, sentiment turns brighter, and lending and spending recover, bringing about a new cycle.
But the last time that such a textbook undulation happened was the expansion from 2002 to 2007, which ended in the economic carnage of the financial crisis. Since 2009, the U.S. economy’s only recession was the result of a once-in-a-century pandemic — not from major internal turmoil.
And it was not clear as this decade began that the economy was in immediate danger. In February 2017, right after Mr. Trump took office, the unemployment rate was 4.6 percent. In February 2020, the last month before the pandemic lockdowns, that figure stood at 3.5 percent.
Some significant figures in finance, like David Kelly, chief global strategist at JPMorgan, and Rick Rieder, a leading fund manager at the investment firm BlackRock, have recently reiterated their bold theory that the traditional business cycle, as previously understood, has ceased to exist — and that the labor market is likely to end up in a similar healthy groove, even if unemployment doesn’t fall as low this time around.
The argument, in general, is that the inherently cyclical ups and downs of the manufacturing and agriculture industries, which were once mainstays of the U.S. economy, don’t apply in a modern context: Roughly $7 in $10 in the American economy now stem from consumer spending, mostly directed toward a wide variety of services consistently in demand.
“We expect the economy to add an average of 150,000 to 175,000 payroll jobs per month in 2025,” Mr. Kelly said in note this week to clients. “And provided any immigration crackdown isn’t too dramatic, foreign-born workers should be able to meet this demand, holding the unemployment rate close to 4 percent.”
And while Mr. Kelly stipulated that the economy was not “invulnerable,” he added that enthusiasm about the prospects of artificial intelligence — which has recently driven business investment, a stock market surge and a boomlet in labor productivity — should sustain capital spending.
On that score, other labor market analysts are more concerned. Skanda Amarnath, the executive director of Employ America, a research group that tracks industrial data and promotes full employment, argues that the A.I.-driven tech boom could end in tears if economic growth connected to the appetite for tech spending in Corporate America became sated, overextended or both.
If such a downturn came to pass, it would feel like the winds of the traditional business cycle reasserting themselves after a long stretch of doldrums.
“The more we see near-term upside materialize in 2025, so, too, grows the likelihood of a deeper future recession,” Mr. Amarnath said. “The nature of macroeconomic shocks is that they always bear a surprising resemblance to past episodes, and yet are especially difficult to anticipate.”
Also, a key upside of artificial intelligence for businesses — savings on human labor costs — could be a downside for many workers if A.I. rapidly progresses in the next few years.
“Earlier rounds of I.T. advances generally enhanced labor, but A.I. likely will replace jobs more aggressively,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, a research consultancy.
Putting aside questions about the future, some employment figures of the present are not looking so sunny. A popular measure of labor market momentum known as the hires rate, which tracks a month’s hiring as a share of overall employment, has slipped to the torpid pace of 2013, when the unemployment rate was above 7 percent.
In essence, employment levels are high, but those looking for work are having a harder time. Subdued hiring and subdued firings is an odd limbo to be in. Typically, once unemployment ticks up from its low point during a cycle, it does not gently wiggle sideways near that level; it tends to spike before easing again.
Asked whether unemployment would hit 5 percent sooner than reverting to 4 percent — as precedent and economic theory would suggest — Peter Williams, an economist and managing director at 22V Research, an investment strategy and quantitative analysis firm, said, “I’m quite torn.”
Despite a “robust starting point” for the year and the Fed’s ability to cut interest rates further if more trouble appears, he said, bad omens linger, like the moribund housing market.
“But there’s also just so few vulnerabilities in the economy right now that it’s hard to see how falling down two steps is enough to really wreck things,” he added.