You may have heard that the US is not in a recession, and the positive news about the economy doesn't end there. A soft landing seems imminent, if not already upon us, according to recent data.
In an October post by the St. Louis Fed, economic policy advisor Paulina Restrepo-Echavarria noted that while there's no precise definition of a soft landing, it generally means "when we increase interest rates, manage to decrease inflation, and do so without causing a significant rise in unemployment or a decline in GDP."
"The economic rebalancing we deemed necessary a few years ago appears largely successful," Joseph Briggs, an economist at Goldman Sachs, shared with Business Insider. "If we maintain our current trajectory, I foresee a transition to a more normal economic environment characterized by growth at or slightly above potential, with inflation stabilizing near 2% in the coming months."
Taming inflation without spiraling into a recession could be pivotal. "For many Americans, the difference between a soft landing and a turbulent slowdown is their job security," said Nick Bunker, economic research director for North America at the Indeed Hiring Lab.
Briggs highlighted that achieving a soft landing would be beneficial across the board, helping to avoid the severe economic difficulties often associated with a significant economic slowdown.
A Gradually Stabilizing Economy Despite the Fed's aggressive rate hikes in response to high inflation a few years ago, and maintaining these elevated levels, the labor market remains robust and inflation stubborn. The upcoming Federal Open Market Committee meeting next week is anticipated to maintain the current rates, as indicated by the CME FedWatch Tool.
Recent job data reflects a cooling labor market conducive to economic stabilization without overheating. The Bureau of Labor Statistics reported a gain of 175,000 jobs in April, a decrease from March’s 315,000, indicating a controlled slowdown.
Additionally, a decline in new job openings in April, to the lowest level since February 2021, suggests a return to pre-pandemic employment conditions and a potential soft landing, according to Bunker.
"Over the past two years, the US labor market has cooled in a relatively seamless manner: fewer job switches and low layoffs have kept unemployment below 4%," Bunker commented. However, he cautioned that a stall in reducing inflation could reverse these gains.
The Personal Consumption Expenditures price index showed a year-over-year increase of 2.7% in April, a moderate rise that signals a move towards a soft landing.
GDP growth has also remained positive; the last negative change in US real GDP was recorded in the second quarter of 2022, reinforcing the likelihood of avoiding a recession.
A recent UBS report on the ISM manufacturing index, which saw a sharper than expected decline in May, aligns with predictions of a gradual economic slowdown, potentially leading to policy easing by the Fed later this year amid declining inflation.
The Reality of the Soft Landing David Kelly, chief global strategist at J.P. Morgan Asset Management, believes the US has already achieved a soft landing. "To me, a soft landing means unemployment is at full employment levels, and inflation is easing to an acceptable rate," Kelly explained, anticipating another favorable jobs report.
Kelly humorously remarked, "It seems the plane landed two and a half years ago, and we've been cooling ever since."
Jason Draho, head of Asset Allocation Americas at UBS Global Wealth Management, noted diminishing disparities in economic forecasts among investors, though some still consider a recession possible. "The consensus seems to be that growth is slowing but stable, inflation is stubborn but declining, and the likelihood of Fed rate cuts is high, with hikes unlikely," Draho said, describing the scenario as "a comfortable soft landing with occasional turbulence."
Despite these optimistic economic assessments, Kelly acknowledged, "It's still a challenging economic landscape for many, particularly favorable for the top 10% of households, less so for others."
