• The latest data on jobs from the Bureau of Labor Statistics shows a still-robust labor market in the US.
  • That's both bad and good news for the Federal Reserve, which is trying to cool the economy.
  • But the latest data also means that an upcoming recession might be more tepid than the last few.

A recession may be on the country's horizon — but it's probably not going to look like what most Americans would expect to see.

With inflation continuing to soar in the US, the Federal Reserve has moved aggressively to combat high prices by hiking interest rates. On Wednesday, the central bank raised the rates by 0.75 percentage points — the fourth consecutive time it did so at that scale — and it remains on course with Fed Chair Jerome Powell's message that the economy will need to experience "some pain" to get inflation under control. 

But on Friday, new data from the Bureau of Labor Statistics showed that the labor market continues to be strong. The US added 261,000 payrolls in October, above estimates. 

The strong labor market is complicating matters for the Fed. While its focus is on bringing prices down for Americans, the challenge comes with how aggressive is too aggressive — hiking interest rates may slow down the economy, but it also risks bringing on a recession.

Friday's jobs report, however, may put those concerns at bay because it shows the economy is on track for a so-called growth recession, defined as a shallow contraction that still features a strong labor market. The latest data seems to align with the Fed's ultimate goal of inducing that kind of gradual, manageable recession.

"I don't think that this changes the Fed's view of the labor market. I think the report is close enough to what they were expecting," Daniel Zhao, lead economist at Glassdoor, told Insider.

The unemployment rate was still low in October but did rise from 3.5% in September to 3.7%. And both the overall labor force participation rate and the prime-age rate, ages 25 to 54, fell in October.

Nick Bunker, economic research director at Indeed Hiring Lab, told Insider that the labor market is still robust but there are "some signs of some moderation," adding that worker demand seems to be easing.

Bunker said hopefully it shows the economy "maybe making a soft landing," something the Fed has been angling for in its fight against inflation.

"But there's of course a possibility that the landing is a lot harder and a lot rougher than what we're seeing right now," Bunker said.

Don't expect a big dramatic recession

If a recession does happen, it would be "much milder" compared to the one seen during the pandemic and the great financial crisis, David Kelly, chief global strategist at JPMorgan Asset Management, previously told Insider.

Kelly said those two recessions in particular "were not normal recessions" and were instead "mega recessions."

But it's still hard to know just how big or serious the upcoming recession could be, especially as the Fed waits on more economic indicators.

"Over the next year, the pace of hiring is likely to slow sharply, if as many expect the unemployment rate edges up over the 4% level," Mark Hamrick, senior economic analyst of Bankrate.com, said following the jobs report on Friday. "That's in the context of a high likelihood of a recession emerging. But the severity or magnitude of such a contraction is difficult to forecast."

What's called a "growth recession" might be on the horizon. Workers would see unemployment rates go up as economic growth slows. If that sounds familiar, you may have already seen traces of it in the latest BLS employment situation release: The unemployment rate ticked up slightly, although it still hovers near record lows. 

"Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions," Federal Reserve Chair Jay Powell said in his November press conference. "Restoring price stability is essential to set the stage for achieving maximum employment and stable prices in the longer run."

As Insider previously reported,the Fed's high interest rates would cause companies to slow their hiring plans, and therefore lead to smaller pay gains for workers. Certain workers may be hit more than others in the next recession.

"Increasing interest rates signals to working people that the government thinks we have too much money and we should have less money to spend," Liz Shuler, the president of the AFL-CIO, said in a statement after the Fed's most recent rate hike.

But while a growth recession won't be pleasant for workers — interest rates will be high, wages might not grow as much, and some jobs might be cut — it won't be anything like the Great Recession or 2020's chaos.

Kelly said that the issue is "most young people in America, the only memory they have of a recession are those two recessions," 

But keep an eye on inflation 

Inflation has been sky high. Core inflation, which excludes volatile food and energy prices, was at a 40-year high in September. Attention will be on the next Consumer Price Index report out from the Bureau of Labor Statistics on November 10. 

Looking ahead, all eyes are on the Fed's December meeting when it will announce its next round of interest rate hikes. Powell indicated on Wednesday that the rate hikes could slow down "as soon as the next meeting or the one after that," but he maintained that rates will still need to be increased as long as high inflation levels persist. 

"I don't have any sense that we've over-tightened or moved too fast," he said. "I think it's been a good and a successful program that we've gotten this far this fast. Remember though, that we still think there's a need for ongoing rate increases and we have some ground left to cover here, and cover it we will."

If prices stay persistently high, Powell and the Fed could spring into action and cover that ground more aggressively. That could mean an even more unpleasant recession.

"We are watching the industry data closely for which industry will be that canary in the coal mine for a broader recession," Zhao said. "I think the obvious sectors to watch are the more rate sensitive ones," like construction, as the housing market cools.