Vicious Cycle Index Signals Early-Stage U.S. Recession

The Vicious Cycle Index (VCI), a recession indicator with a perfect track record since 1945, is currently signaling that the United States has entered the early stages of an economic downturn. Developed by Mark Zandi and his team at Moody's Analytics, the VCI is designed to identify recessions before they are officially declared by government agencies. The VCI builds upon the Sahm Rule by incorporating a five-year moving average of labor force participation. This adjustment allows the index to capture workers who have stopped seeking employment, thereby avoiding the false alarms that can occur when the labor market appears healthy but is actually weakening. The index triggers a recession signal when the three-month average unemployment rate rises by more than 1% over the previous 12 months. Zandi contends that the U.S. is already in a recession, despite the lack of an official confirmation from the National Bureau of Economic Research (NBER). While March data showed 178,000 jobs added, Zandi argues this figure is misleading, following a sharp February decline caused by severe winter weather and a labor strike at Kaiser Permanente. He suggests that without healthcare employment, the U.S. would have seen a net loss in jobs since April 2025. Further compounding the economic stress is an oil shock resulting from conflict with Iran, which is driving inflation higher. These pressures are reflected in a labor force participation rate that has fallen to 61.9% and consumer confidence that hit a record low in April. Consequently, Moody's Analytics has raised its probability of a recession over the next 12 months to 48.6%, significantly higher than the 30% odds estimated by Goldman Sachs.