Did the U.S. Dodge a Recession? The Data Say: Not So Fast.

A scene from the floor of the New York Stock Exchange on Friday. (TIMOTHY A. CLARY/AFP via Getty Images)

Things appear to be going swimmingly for investors, making it safe to go back in the water after a tumultuous second quarter for the stock market.

The labor market is strong, consumers are still resilient, tech is back in the driver’s seat, investors are still shrugging off tariffs, and the S&P 500 and Nasdaq Composite are back at record highs. Yet there could still be an undertow.

BCA Research Chief Global Strategist Peter Berezin has doubts about the outlook. His firm reiterated a call suggesting investors should be slightly underweight on stocks, noting that it will sound the all-clear on the economy if data show obvious signs of stabilization this summer.

“For now, that has not happened,” Berezin wrote in a research report on Thursday.

To start with, the jobs report, showing more employment growth than expected in June, looks less impressive considering that it included **“**an outright decline in the aggregate number of hours worked in the private sector.” An additional 80,000 state and local government workers masked that weakness, and to “add insult to injury, the increase in government workers was mainly fictitious,” he said.

“Employment among teachers usually falls in June, as the summer vacation begins.” The implication is that the temporary bump last month, likely attributable to some teachers working a bit longer than usual this year, looks poised to be reversed in the July reading.

It is also worth noting that some of the drop in unemployment rate to 4.1% in June from 4.2% in May is attributable to people simply dropping out of the workforce, or being forced to leave the country as a result of President Donald Trump’s immigration crackdown. Since the start of the year, the labor force has fallen by 364,000.

He’s also skeptical of the JOLTS report, which showed a surprise 374,000 increase in job openings in May, saying that doesn’t square with measures from Indeed and LinkUp. Both declined that month. Claims for continued unemployment benefits have ticked up, so lower job listings could be next.

“The next shoe to drop could be initial claims,” Berezin write. “If they were to spike, that would be a telltale sign that a recession is starting.”

Then there is the fact that consumer spending hasn’t grown for five months, while the housing market continues to struggle–a situation that a weakening labor market would only exacerbate. Real personal consumption expenditure was 0.2% lower in May than it was at the end of 2024, and some of that spending might simply be due to price increases.

Berezin highlighted the Bank of America Consumer Checkpoint reading for June, which showed spending on services–a category less likely to be affected by tariff-induced price hikes–declined for a third straight month.

Putting all of that together, the economic fundamentals suddenly look a lot shakier.

In fact, he noted, only one of six main data points tracked by the National Bureau of Economic Research in making its calls on when recessions start and end isn’t flashing red. The payrolls numbers, which Berezin argues are distorted, are still in comfortable territory, he said.

But the other five “indicators suggest that the economy may be approaching a recession, with an outside chance that it has already entered one,” he wrote. Those include real personal income less transfer receipts, or income adjusted for inflation excluding government assistance; employment as measured by households; real personal consumption expenditures; wholesale retail sales adjusted for price changes; and industrial production.

Of course the U.S. has been eluding a called-for recession for years, and bulls have plenty of ammunition when they argue that the party isn’t over. Artificial intelligence is at the top of that list, but trade deals would help, too.

Yet past isn’t prelude, and if data points do start to turn, the market could do the same.

Write to Teresa Rivas at teresa.rivas@barrons.com