Strong Jobs Report — But Recession Risk Is Still 40%

• April jobs report showed 115,000 jobs added, but underlying job growth is closer to 50,000, which is inconsistent with stable unemployment.
• Recession risk is assessed at a high 40% over the next 12 months, driven by a soft labor market (falling participation rate, reluctance to hire), rising inflation, and declining real disposable income.
• The stock market's current highs are seen as 'stretched' and largely disconnected from the broader economy, fueled by AI and tax cuts, rather than widespread economic strength.
• The Fed is unlikely to cut interest rates due to persistent inflation, and rate hikes could become a possibility if inflation expectations rise significantly.

Mark Zandi of Moody's Analytics discusses the latest jobs report, noting that while April saw 115,000 jobs added, underlying job growth is softer, contributing to a 40% recession risk. He highlights rising inflation, declining real disposable income, and a fragile labor market as key vulnerabilities. The stock market's disconnect from the broader economy, driven by AI and tax cuts, is also a concern, with Zandi describing the overall economic sentiment as 'nervous'.