Andrew Hollenhorst, Citigroup's chief US economist, warns that a deteriorating labor market will likely cause the US economy to rapidly decline later this year.
"Firms are hiring at a slower pace and reducing workers' hours," Hollenhorst told CNBC on Tuesday. "This gradual softening is already underway and tends to snowball into a hard landing."
While recent labor market data might not fully reflect this, Hollenhorst argues that some reports reveal a more pessimistic scenario. A hard landing is worrisome, as it often leads to a full-fledged recession.
"Small businesses report their hiring intentions are at the lowest levels since 2016," he said, citing National Federation of Independent Business (NFIB) survey data. "Overall, the hiring rate is now at its lowest since 2014, marking the lowest rate in a decade."
Although bearish sentiment from NFIB data isn't new, Hollenhorst notes the recent sharp decline warrants attention.
Even from a broader perspective, there are reasons for concern. Hollenhorst points out that the national unemployment rate, though around 3.9%, is a notable increase from its previous low of 3.5%.
He predicts that if unemployment rises above 4%, the Federal Reserve may start lowering interest rates by July. He anticipates four rate cuts before the end of 2024.
Other analysts share Hollenhorst's hard-landing concerns tied to labor market deterioration. Danielle DiMartino Booth, a veteran forecaster, suggests one unemployment indicator shows a recession has already begun.
Hollenhorst believes the likelihood of a July rate cut is strengthened by the prospect of a hard landing and weaker economic activity. He argues that the Fed's higher-for-longer interest-rate policy is straining corporate earnings, especially as consumer savings dwindle.
