by Robert Romano
The U.S. employment level in the Bureau of Labor Statistics’ household survey has barely grown the past year, only increasing at 0.03 percent since July 2023, from 161.2 million to 161.26 million, with just 57,000 more people saying they’re employed today than a year ago.
This puts the U.S. economy at a critical crossroads, where it could lead to recession, or go on a slight detour but still wind up in one, likely during the next administration. Either way, this is what peak employment usually looks like after inflation peaks, interest rates rise and consumers max out on credit, and we’re past it.
There are still three more employment situation reports to be released between now and the Nov. 5 election between Vice President Kamala Harris and former President Donald Trump, but regardless of who wins, once the employment level goes negative over a 12-month stretch, in every single instance, it occurred immediately before, during or following a recession.
In 1949, 1953, 1958, 1975, 1980, 1982, 1991, 2001, 2008 and 2020, employment reached the point of contracting during the recession. In 1961 and 1971, it reached the point of contraction on a 12- month basis immediately following the recession.
And interestingly, in 1952 and 1957, it briefly touched into negative territory, but bounced up again before succumbing to recessions with negative employment growth a year later.
Meaning, no matter how it’s stacked up, being so close to employment falling into negative territory on an annual basis, and once it does so, is a terrible signal for the overall economy.
Here’s the wrinkle. If and when it goes negative, we won’t immediately know whether the downturn in household employment will be prolonged, or if it will temporarily bounce back before fully succumbing some months later. So, how to tell whether it’s a head fake, or the real deal?
Listen to the bond markets, particularly, the inverse relationship between employment and the spread between 10-year and 2-year treasuries. Usually, the yield curve inverts—signaled by 2-year treasuries having a higher interest rate than the 10-year treasuries—as the economy has reached peak employment.
That condition has already been met, with the spread between 10-year and 2-year treasuries having been inverted since 2022. And then, when it uninverts, it does so as employment is dropping. Usually, by then, the Federal Reserve has decided to cut interest rates as the economy slows down and into recession.
That condition is about to be met, with the spread between 10-year and 2-year treasuries now at a meager -0.01 percent as of this writing. The uninversion appears to be upon us, just as employment appears poised to go negative. We’re right on the cusp. Whether we plunge into recession now, or within 12 months, then, how to deal with the economy appears to be the most pressing issue facing the candidates, Harris and Trump.
So, that should be the issue of the election: A potential recession appears to be within sight. What would the next administration do, if anything, to address it, promoting growth and mitigating an otherwise dramatic increase in unemployment. It won’t do much good to suggest that by merely winning the election, a downturn can be avoided, a short-sighted strategy that might ultimately hurt the party of whoever wins.
Instead, politically, it might be better to embrace reality and address it as it comes. In 2020, despite temporarily losing 25 million jobs to Covid, Trump nearly won re-election by immediately deploying an economic program to keep small businesses afloat during the lockdowns, and then to rapidly reopen when the worst of Covid was moving past us. It worked.
By the end of 2020, more than 16 million of the 25 million jobs lost had already been recovered, and politically, it was not a disaster completely for the incumbent party, although Trump lost narrowly by 43,000 votes in three swing states, Wisconsin, Georgia and Arizona, Republicans managed to pick up 13 seats in the House and nearly held onto the Senate, and the winner, President Joe Biden, had very slim majorities that made it difficult to impose a broad legislative agenda.
For Harris, ignoring the weakening economy by not addressing policy specifics may not be helping her election bid per se, only averaging 47 percent of the popular vote in the 5-way race between Harris, Trump, Jill Stein, Cornell West and Chase Oliver, showing potential weakness that in the past signaled the defeats of both Al Gore in 2000 and Hillary Clinton in 2016, who although they won the popular vote, failed to get above 50 percent, instead netting 48.4 percent and 48.2 percent respectively as they both lost the Electoral College.
Politically, for the incumbent, running on what remains of the recovered economy could still work, but with the higher likelihood of a downturn given other signals, Harris and Democrats might end up regretting not preemptively preparing their constituents. Even if a downturn is avoided before the election, and Harris wins, having one happen anyway could harm the incumbent Democrats in the 2026 midterms. But to get there, Harris would have to admit the economy was weakening right now, and admitting fault or a problem is not usually something incumbents do well. Stay tuned.
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Robert Romano is the Vice President of Public Policy at Americans for Limited Government Foundation.
Photo “Office Work” by Polina Zimmerman.
