Morgan Stanley: Jobs Slowdown Signals Recession’s End, Not Onset
September 8, 2025 — A recent report from Morgan Stanley suggests that the current slowdown in U.S. job growth is not a harbinger of an impending recession but rather an indicator that the economy is transitioning into an early-stage recovery. The analysis, led by chief U.S. equity strategist Mike Wilson, challenges the prevailing narrative surrounding August’s weaker-than-expected jobs data, which saw nonfarm payrolls rise by just 22,000, significantly below forecasts.
A Rolling Recovery in Progress
Morgan Stanley’s strategists argue that the U.S. economy has been navigating a “rolling recession” since 2022, with various sectors experiencing downturns at different times. They point to what they call “Liberation Day” as the trough of this recession, after which the economy began to rebound. According to Wilson’s team, the latest jobs report, despite its disappointing headline numbers, supports their view that the economy is now in the early stages of a recovery. “Friday’s jobs data and improvement in revisions means June is the latest low point for payrolls this cycle,” the team noted, emphasizing that labor market weakness peaked earlier this year.
The report highlights a V-shaped rebound in earnings revisions breadth—a metric tracking analysts’ upward versus downward revisions—as evidence of this recovery. Historically, such inflections have occurred after recessions, not before, lending credence to Morgan Stanley’s optimistic outlook. The strategists also argue that traditional recession indicators, such as sharp spikes in unemployment or payroll declines, have been absent due to the unique, staggered nature of this downturn.
Federal Reserve’s Role in the Recovery
The weak August jobs data has all but guaranteed a Federal Reserve interest rate cut at its upcoming September 17 meeting, with traders assigning a 100% probability to the move, according to CME Group data. Morgan Stanley’s team views these anticipated cuts as critical to sustaining the bull market that began in April. However, they caution that the Fed’s ability to cut rates significantly may be constrained by persistent inflation concerns, particularly in light of President Donald Trump’s tariffs.
“Friday’s weak jobs data provided further proof that the U.S. is transitioning to an early-stage recovery, with Federal Reserve interest-rate cuts now key to the next leg of the bull market,” the report states. The strategists acknowledge near-term risks, noting that markets may face volatility during the typically weak September and October period, especially if the Fed’s response is deemed insufficient.
Market Implications and Investor Sentiment
The jobs report, coupled with downward revisions for June (though offset by upward revisions for July), has rattled investors, contributing to a 0.6% drop in the S&P 500 and a 0.7% decline in the Dow Jones Industrial Average on Friday. Treasury yields also fell, with the 10-year Treasury note dropping below 4.3% from 4.8% in mid-January, reflecting growing investor caution.
Morgan Stanley’s strategists urge investors to look beyond the immediate labor data, which they describe as “always late to the party.” They argue that equity markets typically anticipate economic shifts before labor metrics confirm them. “By the time labor data confirm a downturn, it’s typically after the equity market has figured it out,” the report notes.
A Broader Perspective
While Morgan Stanley’s analysis paints an optimistic picture, not all economic indicators align with their recovery narrative. Other reports, such as those from the Bureau of Labor Statistics, highlight significant downward revisions to earlier job growth figures, with May and June 2025 data revised down by a combined 258,000 jobs. Additionally, the unemployment rate ticked up to 4.3%, and sectors like retail and tech are showing signs of cooling.
Despite these challenges, Morgan Stanley remains confident that the economy is on an upward trajectory. The firm’s strategists point to sector-specific recoveries, particularly in tech and consumer goods, which benefited from COVID-related stimulus and are now leading the broader economic rebound.
Looking Ahead
As the Federal Reserve prepares for its next meeting, all eyes will be on the scale of the anticipated rate cut and its potential to bolster economic growth. Morgan Stanley’s team believes that while short-term market choppiness is likely, the combination of Fed action and improving corporate earnings sets the stage for a stronger end to 2025 and a robust 2026.
For now, Morgan Stanley’s contrarian take offers a glimmer of hope for investors navigating an uncertain economic landscape. The firm’s message is clear: the jobs slowdown is not a signal of collapse but a sign that the worst may already be behind us.
Source: Morningstar, Dow Jones, September 8, 2025