The stark assessment comes as hiring has stalled, unemployment is rising—especially for the most vulnerable workers—and layoff announcements are piling up. To Zandi, the next stage is already visible: “If we actually do see layoffs pick up,” he told Fortune, “then it certainly would be a jobs recession.”

Zandi reached that assessment before the government released its long-delayed JOLTS report Tuesday, but the official numbers largely confirm the pullback he has been tracking through private data. Since the summer, job openings have risen by only a few hundred thousand and remain far below the highs seen in the frenzy of the pandemic. Layoffs upticked slightly, while quit rates fell, a sign that workers are increasingly hesitant to leave their current positions. Hiring, meanwhile, has held at 3.2%, a level consistent with employers who are not actively slashing staff but are no longer expanding their workforces either: a “low hire, low fire” market. 

If the cooling in the official data looks slow, the private indicators tell a sharper story. ADP’s November report found that private employers cut 32,000 jobs, the steepest decline in more than two years. Nearly all of those losses came from small businesses, which eliminated 120,000 positions. Larger employers moved in the opposite direction and kept hiring.

For Zandi, the pattern is not random. He sees it as the continuation of a break that appeared earlier in the year, when the administration escalated reciprocal tariffs.

“If you look at when job growth really came to a standstill, it is back soon after Liberation Day,” he said. 

Because these firms often lack the financial cushions that larger corporations can draw upon, payroll becomes the most immediate and often the only mechanism through which they can respond to rising input costs. The result, Zandi argues, is a labor market in which the earliest fractures appear among precisely the kinds of employers most sensitive to policy and price shifts. Those fractures then begin to ripple outward, first through hiring freezes and only later, if conditions worsen, through broader layoffs.

Layoffs are coming, Zandi warns

So for Zandi, if ADP offers a snapshot of the present, the data from Challenger, Gray & Christmas hints at what may lie ahead. Employers have announced 1.1 million layoffs this year, a figure surpassed only during the pandemic shock of 2020 and the depths of the Great Recession. These announcements are global, and not all will materialize as U.S. cuts, Zandi advised, yet he considers their scale meaningful because they reflect decisions made months in advance of actual separations. 

“That would suggest that there are layoffs coming,” he said. “They seemingly have not occurred yet.” The disconnect between rising layoff announcements and historically low unemployment-insurance claims feels increasingly “incongruous” to him, and he suspects one reason may be that early cuts are falling on higher-income workers who receive severance or wait longer before filing for benefits, obscuring the first phase of the weakening.

Pressure is also building in pockets of the labor market that are typically harbingers of broader stress. Unemployment has risen for young workers and for Black workers, both groups that tend to see deterioration earlier in the cycle, Zandi said. Industries that rely heavily on foreign-born labor—including construction, logistics, and agriculture—are grappling with a tighter supply of workers owing to deportations, placing additional strain on small firms. 

Meanwhile, early research on AI adoption suggests that entry-level hiring in technology and information services is already being reshaped, a development Zandi believes may be understated in traditional datasets but is nonetheless starting to influence the distribution of job opportunities. All of these dynamics contribute to what he sees as a labor market that is weakening in slow but structurally significant ways.

What has kept the labor market from slipping into outright contraction is the continued strength of spending among higher-income households, even as borrowing costs remain elevated and prices have yet to fully ease. That persistence, despite rising layoff announcements and weakening hiring, reflects how insulated wealthier consumers remain after a year of strong equity gains fueled in part by the AI boom. It is also the clearest sign that the “K-shaped economy” has not dissipated but deepened, with affluent households buoyed by financial markets while lower- and middle-income workers face mounting strain.

Zandi regards this spending as one of the last buffers preventing the slowdown from becoming self-reinforcing. Lower- and middle-income households remain stretched, however, and he warns that any further erosion in hiring could push them to retrench. Because these households account for a large share of day-to-day consumer activity, even a modest pullback could turn the current pattern of weak hiring into a contraction.

A pivotal moment for the Federal Reserve

The Federal Reserve is debating over an interest rate cut Monday and Tuesday into precisely this environment, a choice that reflects the central bank’s growing concern that the labor market could deteriorate more quickly in early 2026 if not supported now. 

The chances of the Fed delivering its third interest rate cut of the year tomorrow are 90%, according to the CME FedWatch Fed funds futures index. Economists expect the Fed to deliver a kind of hawkish cut, a move that acknowledges the weakness in hiring but refrains from promising a sustained cutting cycle.

That’s because the tension inside the committee is unusually pronounced. Bank of America economist Aditya Bhave wrote in a research note that Fed Chair Jerome Powell is confronting “the most divided committee in recent memory.” Some officials believe unemployment risks are rising and see a compelling case for further accommodation. Others remain convinced that the economy retains enough underlying strength that aggressive easing would be premature and potentially inflationary. 

For the Fed, the challenge is to articulate a strategy that acknowledges the unmistakable weakening Zandi has been warning about without assuming that the slowdown has already reached a stage requiring an aggressive response. 

For Zandi, the concern is more immediate: that the softening now visible in small-business payrolls, layoff announcements, and early demographic stress will eventually coalesce into the layoffs he believes are coming.

“If we’re not in a jobs recession, we’re close,” Zandi said.