I just read something that caught my attention about what might be happening with the U.S. economy right now.

Mark Zandi, the chief economist at Moody’s Analytics, released an analysis that basically says: look, there’s an indicator we’ve been using for decades that has never failed, and that indicator is flashing all red lights right now. It’s called Índice de Ciclo Vicioso (VCI), and it’s like an improved version of the famous Sahm rule, but adjusted to truly measure what’s going on in the labor market.

Here’s how it works: if the three-month average unemployment rate rises by more than one percentage point compared with a year ago, that triggers a recession alert. According to Zandi, this indicator rose by more than one point in January and has remained elevated over the last three months. And here’s the interesting part: in ALL recessions after World War II, this indicator got it right without issuing false alarms.

What I find relevant is how Zandi is interpreting the March employment data. Yes, 178,000 jobs were created, beating expectations. But he warns that we shouldn’t celebrate too quickly. He says February was a disaster due to extreme cold and the Kaiser Permanente strike, so March was more of a recovery than real growth. If you exclude medical jobs, employment in the United States is declining.

The most worrying thing is that the VCI is close to 5%, which suggests that labor market weakness is far more severe than the official numbers show. There are workers who are simply dropping out of the labor market, which means underutilization is worse than what the unemployment rate reflects.

Of course, we have to be fair: the VCI is a specific indicator and the Sahm rule is not infallible. In fact, it issued a warning in the summer of 2024, and the United States avoided a recession thanks to a soft landing. But in the current context, with the headwinds facing the economy (the war in Irán, consumer confidence falling, pressure on employment), several analysts have increased their recession odds. Moody’s estimates 48.6%, Goldman Sachs 30%, and EY-Parthenon 40%.

Jerome Powell of the Reserva Federal says the economy has shown resilience, but honestly, these indicators suggest that we should be paying much more attention to what’s happening beneath the surface. The VCI could be telling us something important that traditional employment data are masking.