Is Planned Hiring Signaling a Recession?

The recent implementation of U.S. tariffs and the global trade war prompted several economists and research institutions to increase their likelihoods of a near-term recession. The International Monetary Fund, for example, recently increased the 12-month recession odds from 25 to 40 percent, citing rising tariff-related macroeconomic risk. Similarly, J.P. Morgan economists raised their recession likelihood from 40 to 60 percent for the same reason. Against the backdrop of rising recession concerns, employer hiring trends could provide early insights into the likelihood of an impending economic downturn.

Recessions are often characterized by spikes in unemployment and broad declines in economic activity. Although waves of layoffs often capture headlines during recessions, research finds that slowdowns in hiring and declines in the job-finding rate play a larger role in driving increases in unemployment. Because of the deep connection between hiring and the unemployment rate, planned hiring rates revealed in survey data may provide one of the strongest early indicators of an economic downturn.

A survey by the National Federation of Independent Business dating back to 1971 measures the share of small businesses planning to create jobs in the next three months. The benefit of this survey is that it captures several recessions, highlighting a systemic relationship between planned hiring and a subsequent recession. The data shows steep declines in planned hiring during recessions and several cases of planned hiring dropping in the months preceding a recession. The most recent data shows two consecutive months of decline—a concerning sign, considering the relative stability of the series.

Other surveys have confirmed the recent decline in expected hiring. The Federal Reserve Bank of Dallas collects some of the most detailed data on firms’ projected hiring activity. Although the data are collected only for Texas firms, surveys from other regions of the U.S. show consistency in recent trends. The data show that after the wave of post-pandemic stimulus peaked in the latter half of 2021, planned hiring declined steadily through the end of 2024. By the start of 2025, the outlook appeared to rebound before falling sharply again as tariff concerns escalated.

A national-level survey published by the Federal Reserve Bank of Atlanta also tracks projected hiring activity. The survey measures expected employment growth rates from a large sample of U.S. firms. Recent data show strong expected employment growth at the start of 2025, followed by a sharp decline, likely reflecting a weakening macroeconomic outlook.

The influential role of changes in hiring and job-finding to spikes in the unemployment rate during recessions underscores the importance of monitoring hiring activity. Moreover, planned hiring trends can provide an early indication of an economic downturn. Recent declines in planned hiring activity across various surveys indicate an increase in recession risk, validating the concerns expressed by several economists.

Source: Federal Reserve Bank of Dallas (accessed via FRED)