As the U.S. Labor Market Shows Growing Signs of Weakness, Likely Scenarios Around How This Plays Out Look Grim

The best case scenario is a zero-growth stagflation economy, the likeliest scenario is full-blown recession, and the worst case scenario is a complete meltdown

In a NYT article on Sunday (In Georgia, Republicans Vote to Kill Green Jobs but Face Little Fallout), a real estate agent in Cedartown, GA (pop. 10,300) says of the 1,200 job openings that a solar panel recycling company has paused hiring for as a result of the budget bill passed by the House that will likely shutter the company before it gets the facility opened, “Until we see somebody get hired, until somebody goes to Kroger’s and tells their friend in the produce section, ‘Hey, I just got a job there,’ it’s not real yet.”

This disease that’s plagued Cedartown, the one destroying people’s ability to see the most glaring inevitability just a few months into the future, appears to be the same one afflicting huge swaths of the country these days, rendering millions unable to recognize the never-ending series of infernos being lit by the arsonists in Washington as real until the flames torch us all.

The collective delusion about what’s happening and what’s coming is arguably most pronounced in the markets which have regained all the losses stemming from the Tariff Tantrums earlier this year. The markets jumped up another notch last week after May’s jobs report showed gains of 139,000. As the Journal noted:

While hiring slowed from the prior month, the data signaled the downturn many feared would materialize during President Trump’s trade war hasn’t appeared. “It’s consistent with an expanding economy,” said Rob Waldner, chief strategist and head of macro research at Invesco, of the latest jobs report. “There’s just nothing in the hard data that shows us that there is a big correction coming.”

Leaving aside the epic corruption and the incineration of our democracy and focusing only on the most tangible impact on the economy (and, in turn, the markets), it’s baffling how blind people are to what’s coming given the past 150 days.

The list is endless but it includes, to name just a handful of items, tariffs at the highest level in 90 years, global trade and supply chains completely scrambled, ICE raids and enforcement operations, deportations to foreign gulags, travel bans, tourism annihilated, work visas revoked, student visas revoked, the Federal workforce chainsawed, IRA and CHIPS gutted, Federal assistance programs massively defunded, research funding cut, grants slashed, higher education attacked, federal appropriations channelled via state and local budgets severely curtailed, programs and funds for job training obliterated, the U.S. military deployed domestically, and, of course, unprecedented, alarming levels of chaos, insanity, and unpredictability growing by the hour, 24/7.

As we wrote two months ago, it’s a hell of blunders, madness, and deception.

The decimation of the economy that was, just 6 months ago, the envy of the world, has most assuredly begun and it’s only a matter of time before the damage to everything and everyone, everywhere, becomes too real to miss - most likely all at once. Looking at the job market, always the fulcrum upon which the entire economy rests, there’s evidence that the flames are beginning to lick.

Despite the misguided optimism on Wall Street, there was plenty to be concerned about in May’s jobs report - job gains dropped again from the prior month, the participation rate fell to 62.4% as 625,000 people left the job market, March and April gains were revised down by 95,000 jobs, and we’ve now had two consecutive months of shrinking foreign-born employment.

And as noted in a WSJ op-ed piece, the supply of workers continues to wane.

Don Luskin of Trend Macro calculates that from January to April 2025, the immigrant population has shrunk by 773,000, or 193,000 a month. Fewer immigrants mean fewer workers to fill job openings, so there will be a cost in future growth from the Trump Administration’s border closure and deportation roundups

The bad news continued this week with more layoff announcements and another jump in unemployment claims which are rapidly approaching 2 million, a level not seen since 2021.

Even more distressing evidence lies in LinkUp’s forward-looking job openings data (sourced daily directly from employer websites globally) which, as we posted last week, shows that labor demand across the entire economy is deteriorating rapidly, a huge warning sign that job growth in the next few months will continue to decline.

Job openings fell 4% in May and since the election, labor demand in the U.S. has dropped 11% with declines in all but 3 industries over that span.

Since January, labor demand has bounced along a bottom also not seen since 2021 and materially below our indicator of a balanced job market.

So against the present cataclysmic backdrop, with flames approaching, our best case scenario for the near future is basically a zero-growth economy mired in stagflation that looks and feels like a mild recession. And that best case scenario is only feasible if Bad King Don not only checks his own impulses but reverses a sufficient number of past, present, and future decisions and dramatically reduces the destruction spewing from Washington. It’s that condition that renders this a fairly low (~35%) probability scenario.

Our higher-probability (~55%), baseline scenario is a straight-line continuation along the current, upward trending line of mayhem. Things keep getting worse and worse every week and there’s no reason to suspect that this is going to end anytime soon.

As the conflagration spreads and intensifies, the destruction will accelerate, layoffs will rise dramatically, unemployment will jump up swiftly, already deteriorating consumer strength will fall off a cliff, businesses activity will drop precipitously, and the economy will sink into a full-blown recession, likely a severe one given how badly Republicans will have shredded Federal assistance programs, how thoroughly the administration has alienated the entire free world (so no exports, no cheap imports, no tourism, no foreign students, etc. to save us), and how loathe the Fed will be to lower rates prematurely (if at all if inflation rises as expected between now and then as tariffs hit fully).

Somewhere along the way, the markets will correct, maybe significantly, and one of the cylinders that had been powering the economy of late - top-decile/quartile spending - will blow, sending yet another fireball into the mix.

So things are likely going to get pretty bad and the only positive outcome of this horrific scenario is that it should (but still may not) cost Republicans control of the House (and maybe even the Senate), thus commencing the beginning of the end for the recession and perhaps even the reign of Bad King Don.

And while the worst-case scenario has the lowest probability of occurring, the odds (~10%) are astronomically high considering that we’re talking about THE UNITED STATES OF AMERICA. That final scenario basically starts to unfold if the straight-line, upward progression in scenario #2 is parabolic, voters are passive, marginalized, disenfranchised, or barred from voting in ‘26 and Washing stays in Republican hands, the courts prove useless, and things truly start to melt down.

Lest anyone think the 10% proposed above is preposterous, it’s worth remembering that the Marines are currently stationed in L.A., threats have been made for the same in cities across the country, a military parade is scheduled next week on Bad King Don’s birthday, the January 6th insurrectionists have all been pardoned, and the Brownshirts Proud Boys are suing the government for $100 million (with a now highly politicized Justice Department serving as ‘Defendants’).

So no, it’s nowhere near as preposterous as one would hope to believe.

Let’s hope this Collective Delusion fever breaks soon.