Deutsche Bank Securities Chief U.S. Economist Matthew Luzzetti joins Yahoo Finance Live to discuss factors that could lead the U.S. to and out of a recession, the state of the labor market, Fed rate hikes, and the outlook for the U.S. consumer.

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As the global economy continues to recover from the COVID-19 pandemic, economists are keeping a watchful eye on the labor market. According to some experts, it’s all about the labor market when it comes to predicting a potential recession in 2023.

The labor market is an essential component of the economy, as it reflects the overall health of the workforce and the ability of businesses to hire and retain employees. When unemployment rates are high and job opportunities are scarce, it can lead to a decrease in consumer spending, which can have a ripple effect on the broader economy.

In an interview with CNBC, Mohamed El-Erian, the chief economic advisor at Allianz, stated that the labor market is the key indicator to watch in 2023. He explained that while the current job market is strong, there are several concerning trends that could lead to a downturn.

One of these trends is the shift towards automation and artificial intelligence, which could lead to significant job losses in certain industries. El-Erian also noted that there are significant discrepancies in wage growth between high-skilled and low-skilled workers, which could lead to increased income inequality and push some workers out of the labor force.

In addition, El-Erian warned that the current stimulus measures, including low interest rates and government spending, could create imbalances in the economy that could eventually lead to a recession.

While no one can predict with certainty when the next recession will occur, keeping an eye on the labor market is crucial. By monitoring unemployment rates, job growth, and wage growth, economists can get a better sense of the overall health of the economy and make informed predictions about the future.

Ultimately, it’s clear that the labor market will play a significant role in the economy’s future, and it’s essential that policymakers and businesses work together to promote job growth and address concerns about automation and income inequality. Only by taking proactive steps can we ensure a strong and stable economy for the years to come.