The Strangest Job Market Collapse in History Has Just Started…

Key Concepts

Recession Definition (NBER): The National Bureau of Economic Research's official definition of a recession, which primarily considers unemployment, but also industrial production, real personal income, and manufacturing/trade sales volume.
Unemployment Rate: A key indicator of economic health, its rise is a primary signal for recession according to the NBER.
Industrial Production: Measures the output of factories, mines, and utilities.
Real Personal Income: Income adjusted for inflation, reflecting purchasing power.
Manufacturing and Trade Sales Volume: Indicates demand and activity in the goods-producing and distribution sectors.
GDP (Gross Domestic Product): The total monetary value of all finished goods and services produced within a country's borders in a specific time period.
Consumer Confidence: A measure of how optimistic consumers are about the overall state of the economy and their personal financial situation.
Bare Market: A market condition where prices fall significantly, typically by 20% or more from recent highs.
Federal Reserve (The Fed): The central bank of the United States, responsible for monetary policy, including setting interest rates.
Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
Interest Rates: The cost of borrowing money or the return on lending money.
Inflation: A general increase in prices and fall in the purchasing value of money.

NBER's Recession Criteria and Current Economic Signals

The National Bureau of Economic Research (NBER) has a specific, multi-faceted definition for classifying economic recessions in the US. While the unemployment rate is the primary determining factor, the NBER also considers three other key metrics: industrial production, real personal income, and the volume of sales in the manufacturing and trade sectors.

Unemployment Rate Trends

Current Situation: 25 states in the US are currently experiencing a rising unemployment rate, a phenomenon not seen since 2020 and 2009.
National Trend: The national unemployment rate has risen from 3.4% to 4.0% and then to 4.3% over the past two years.
Historical Context: Historically, a rise in the unemployment rate by nearly a full percentage point has always led the NBER to classify an economic recession.
Global Context: This trend is not isolated to the US. Canada's unemployment rate has risen to 7.1%, Germany's to 6.3%, and the UK's to 4.7%.

Other Recessionary Signals

Consumer Confidence: According to the University of Michigan survey, consumer confidence in the US is at levels only seen during the worst economic downturns in history.
Stock Market Performance: The US experienced a bare market in stocks in early 2025, with the average stock dropping 35%. This level of decline is typical during recessions.

NBER's Lag and Current Data

Despite these concerning signals, the NBER has not yet officially declared a recession. This is attributed to the NBER's reliance on all four metrics and the historical lag between a recession's start and the NBER's announcement, which averages 7.8 months.

Counteracting Data Points for NBER Classification

The NBER's decision is influenced by the performance of the other three key metrics:

Industrial Production: Has flatlined since 2022 but has not contracted, which is a typical recessionary characteristic.
Real Personal Income: Has continued to grow at a steady pace throughout 2024 and 2025.
Manufacturing and Trade Sales Volume: Has actually picked up recently.

These three metrics are described as being "practically at all-time highs," which is contrary to what would be expected during an economic downturn.

GDP Performance

US GDP has consistently hovered between 2% and 3% over the last few years, never dipping below zero into contraction. This is in contrast to most recessions since the 1960s, which were marked by yearly GDP contraction. The 2001 recession is noted as an exception where the economy slowed but GDP did not turn negative year-over-year.

Nuances in State-Level Unemployment and Market Rally

While 25 states are seeing job losses, a closer look at the percentage of states with rising unemployment rates reveals a more nuanced picture.

Percentage of States with Rising Unemployment

Current Trend: The percentage of states experiencing a rising unemployment rate is actually declining. This indicates that more states are seeing their unemployment rates fall back down.
Recessionary Pattern: This is the opposite of what typically occurs heading into recessions, where more states experience rising unemployment.
Post-Recession Pattern: The current trend more closely resembles the pattern observed after a recession ends, as seen in 2020, 2009, 2002, and 1991. These periods were followed by a peak in the unemployment rate and a subsequent decline.

Stock Market Rally and its Interpretation

The current stock market rally is described as the strongest since 2020 and 2009. Historically, these rallies have occurred before a peak in the unemployment rate and have marked the beginning of multi-year economic recoveries as unemployment declined.

Common Narrative: This pattern has led to a widespread narrative that the current economic recovery and market rally are indicative of a new bull market or a multi-year economic recovery.

A Flawed Narrative? The Fed's Role and Inflation

The presented analysis suggests that the current narrative of a robust recovery might be flawed due to the unique response of the Federal Reserve and persistent inflation.

Historical Recession Response

Uncontrolled Unemployment Rise: Historically, recessions are characterized by an uncontrolled rise in unemployment, collapsing business earnings, and spiking layoffs.
Fed's "Panic" Response: This sharp economic pain forces the Federal Reserve to aggressively cut interest rates to stabilize the economy.
Extended Low Rates: The Fed typically keeps rates low for an extended period, fostering multi-year recoveries and driving stock markets to new heights.

Current Economic Situation and Fed Response

Steady and Controlled Unemployment Rise: The current rise in the unemployment rate has been steady and controlled, without a complete breakdown in the labor market.
Muted Fed Response: Consequently, the Federal Reserve's response has been more muted and controlled. They have been thoughtfully lowering interest rates as unemployment has risen.
Potential for Fed Pivot: If the unemployment rate were to suddenly turn down, the Fed might halt interest rate cuts. Furthermore, depending on inflation, they could even consider raising interest rates again.
Inflation Above Target: US inflation is still running above the Federal Reserve's target of 2%, making a Fed pivot a reasonable scenario.

Outlook for the Stock Market

Current Projection: The Federal Reserve is currently cutting interest rates and is projected to continue doing so in response to rising unemployment. This is why the stock market is believed to have more room to run in the coming months.
Risk of Policy Reversal: However, the situation is volatile. The Federal Reserve could quickly reverse its monetary policy, halting the current recovery.

Conclusion: The Fed as the Key Factor

The analysis concludes that calling the current situation a "brand new bull market" or a "new multi-year economic recovery" is premature. The Federal Reserve's actions are identified as the single most important factor to watch in today's market. Investors are advised to adapt their trading aggressiveness based on their assessment of the Fed's likely future moves. The speaker also mentions a limited-time discount for their trading strategy and access to their trades, highlighting their recent success in the stock market recovery.