Moody's top economist says the US job market is already in decline — and the risks of a recession are 'uncomfortably high’

The indicator he refers to is their Vicious Cycle Index (VCI), which reportedly shows that the U.S. economy crossed into recession territory in January and stayed there through February and March — although there were 178,000 new jobs created in March, which Zandi believes isn't reassuring.

What Zandi's recession signal is seeing

To understand why Zandi is worried, you need to know what his index measures.

The Vicious Cycle Index was built on the Sahm Rule — a widely respected recession indicator developed by former Federal Reserve economist Claudia Sahm (2).

According to the Sahm Rule, when the three‑month average unemployment rate of a nation rises by 0.5% above its lowest point from the previous 12 months, it signals the start of a recession. And it’s accurate, as the Sahm Rule has correctly identified almost every recession since 1950 (3).

For the U.S., with a total labor force of roughly 160–170 million people (4), that 0.5% jump corresponds to about 800,000 to 850,000 people losing their jobs.

Zandi's VCI takes the Sahm Rule a notch higher by tracking changes in the labor force participation rate (5) — the share of working-age Americans who are either working or actively looking for work (6).

That rate was 62.8% in August 2023, but it has seen a steady decline since then — as of March 2026, that rate sits at 61.9% (7). This means that roughly 38 out of every 100 working-age Americans are entirely outside the job market — they're not working and they're not actively looking for jobs.

The problem with the standard unemployment rate is that it only counts people who are searching for work. When someone stops sending applications and actively searching for jobs, they disappear from the unemployment count. This leads to the headline rate looking better than the full picture because it misses an entire category of people who are still struggling economically.

Zandi believes the VCI catches what the standard unemployment rate misses, and right now, what it's catching isn't good. The index crossed above 1 in January — the threshold that signals a recession has started — and has stayed there every month since (8).

What the jobs numbers look like when you zoom out

With 178,000 jobs gained, the numbers were stronger in March, but February was a bad month with around 133,000 job losses (9).

Zandi argues that when you average those two months out, the job market has been rather flat since "Liberation Day" a year ago (8), when the Trump administration's sweeping tariffs took effect and hiring slowed down.

"Don't take solace in the big March payroll employment gain. It comes after a big decline in February, when brutal winter weather and a labor strike at Kaiser Permanente weighed heavily on jobs," he wrote in one of his posts on X (1).

If you take out health care, which is the only sector that's still consistently adding jobs, the rest of the economy has been shedding them. "Without health care," he says, "the economy would be losing jobs."

Zandi also places a share of the blame on two big forces: the Trump administration's tariffs, and the sharply restrictive immigration policies.