If you’re scanning for signs of weakness in the economy, the common advice has been to look at the labor market, and one economist says there are two things in particular to pay attention to.
With the flow of economic data cut off for now as the government shutdown persists, predicting the likelihood of a recession has become more difficult. But for Thomas Simons, chief US economist at Jefferies, there are some red flags to watch for that could provide clues about what’s around the corner.
Speaking with Business Insider, he said that he’s not currently forecasting a recession, but he’s watching the labor market for signs of distress. He said that the data he is most concerned about is exactly that which has been stopped by the shutdown, but prior to that, he saw two elements that concerned him.
“The two biggest red flags I was starting to see that were making me more and more concerned were lower participation rates and higher unemployment rates among specific age cohorts,” he stated.
Simons highlighted two age groups: recent college graduates in their early 20s and later career professionals between 55 and 65, essentially opposite age demographics.
He sees a troubled economy in which younger workers are struggling to break in, while people their parents’ age are facing difficulties as well amid rapid changes in the workplace.
“I think demographics suggest that we’re not really getting a ton of new entrants, with more people retiring rather than graduating from school,” Simons said.
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This combination of invisible young workers and disappearing older ones could lead to a labor market that looks stable on the surface but is quietly hollowing out beneath.
A setup like that could leave the economy especially vulnerable to a downturn once demand starts to cool or if hiring slows further.
While young workers don’t typically have enough spending power for it to be reflected in economic data, the older cohort Simons highlighted could pose a much more severe risk to growth if their spending is curtailed.
“To contrast those older workers against the younger ones, those [in the first category] do have a lot more spending power,” he said. “If [older workers] realize actual loss of employment, it’s going to show up in the economic data much more quickly.”
Simons added that he thinks this potential impact has been hidden by the fact that workers between the highlighted age groups seem to be doing well overall.
However, he added that it’s clear the tail ends of the labor market are less stable. This is likely why headline employment data hasn’t revealed a major downturn yet, though the cracks in the market he alludes to could ultimately cause bigger problems.
