The employment market is showing the typical pattern indicating signs of an economic downturn, according to Citi.

Despite expectations that the Federal Reserve Board (FRB) is about to cut interest rates soon, the employment statistics for August, although improved from the previous month, did not alleviate Wall Street's concerns about an economic downturn.

The US economy added 0.14 million jobs last month, falling short of expectations, and the unemployment rate dropped to 4.2%.

The number of private sector employers was 0.118 million, but the 3-month moving average fell below 0.1 million. According to analysts led by Mr. Andrew Horenhorst, Chief Economist at Citi Research, employment in the private sector experienced the most sluggish 3 months since 2012, excluding the pandemic.

On the other hand, the unemployment rate has risen by almost 1 percentage point from the lowest level, as Chief Economist Holenhorst pointed out in a memo on Friday that layoffs, which were previously considered temporary, have now become a regular occurrence.

"It is clear from various labor market data that the employment market is cooling down in the typical pattern preceding an economic downturn,"

In Friday's follow-up note, Holenhorst and others further focused on the fact that the 3-month average of private sector employment growth has fallen below 0.1 million, a pace typically only seen before and after an economic downturn.

Of further concern is the fact that the growth in the number of employers was overestimated by 0.07 million per month due to revisions to past employment statistics.

"The data released this week has made it more certain that the US economy is at least heading towards a significant slowdown (with an even higher chance of an economic downturn), but it is still unclear how the Fed will specifically respond to the worsening outlook," he said, adding that Citigroup's base scenario includes a 125-basis-point rate cut for this year.

Other signs of an economic downturn include a slowdown in automobile sales and a sluggishness in home purchases, which continue to falter despite the recent decrease in mortgage interest rates.

Despite consensus on Wall Street shifting towards a soft landing this year, Holenhorst has maintained a bearish view of the economy and has been relatively contrarian.

He predicted in July that as the economy heads for a more rapid decline, the Fed will cut interest rates by 200 basis points by mid-2025. In May, he further strengthened the warning that the US is heading for a hard landing and that the Fed's rate cuts are not sufficient to prevent it. Similar forecasts were also made in February when the employment statistics were strong.

Certainly, while economists point out the low number of unemployment insurance claims, the strength of corporate earnings, GDP indicators and forecasts, the strong performance of retail sales, and rising wages, it is certain that the consensus has not returned to a recession.

However, in other places on Wall Street, analysts are pointing out other indicators of an impending recession. On Friday, Jose Torres, Senior Economist at Interactive Brokers, noted that the yield curve inversion, which has preceded every recession since 1976, has been resolved.

The inverted yield curve, where short-term yields exceed long-term yields, has become a reliable indicator of an impending recession as it indicates that investors perceive increased risks in the near future.

Although the yield curve has recently been inverted for about two years, the reversal does not mean that the economy has recovered.

In fact, Torres warns that the yield curve turning positive after a prolonged period of negative yields for 2-year and 10-year government bonds has historically preceded an economic recession.