The runway is getting clearer, but the U.S. economy still isn’t assured of a soft landing

November’s
solid
jobs
report
did
not
assure
that
the
economy
will
come
in
for
a
soft
landing,
but
it
did
help
to
clear
the
runway
a
little
more.

After
all,
there’s
nothing
about

a
3.7%
unemployment
rate
and
another
199,000
jobs
that
even
whispers
“recession,”
let
alone
screams
it.

At
least
for
now,
then,
the
U.S.
economy
can
take
another
win
with
a
small
“W”
as
it
looks
to
navigate
through
what
had
been
the
highest
inflation
level
in
more
than
40
years
—
and
a
still-uncertain
path
ahead.

“Overall,
the
jobs
market
is
doing
its
part
to
get
us
to
a
soft
landing,”
said
Daniel
Zhao,
lead
economist
at
jobs
rating
site
Glassdoor.
“It’s
boring
in
all
the
right
ways.
That’s
a
welcome
change
after
a
few
years
of
less-boring
reports.”

Indeed,
despite
a

high
level
of
anxiety
heading
into
the
Labor
Department’s
nonfarm
payrolls
report,
the
details
were
fairly
benign.

The
level
of
job
creation
was
just
above
the
Wall
Street
estimate
of
190,000.
Average
hourly
earnings
rose
4%
from
a
year
ago,
exactly
in
line
with
expectations.
The
unemployment
rate
unexpectedly
declined
to
3.7%,
easing
worries
that
it
could
trigger
a
historically
dead-on
signal
known
as
the
Sahm
Rule,
which
coordinates
increases
of
the
unemployment
rate
by
half
a
percentage
point
to
recessions.

Still,
the
solid
report
couldn’t
dispense
the
lingering
feeling
that
the
economy
isn’t
out
of
the
woods
yet.
The
fear
primarily
comes
from
worries
that
the
Federal
Reserve’s
aggressive
interest
rate
increases
haven’t
exacted
their
full
toll
and
still
could
trigger
a
painful
downturn.

“The
key
uncertainty
for
the
labor
market
in
2024
is
whether
job
growth
slows
to
a
more
sustainable
pace,
or
whether
the
economy
moves
from
monthly
job
gains
to
monthly
job
losses.
The
former
would
be
consistent
with
the
Fed’s
soft-landing
scenario,
while
the
latter
would
mean
recession,”
said
Gus
Faucher,
chief
economist
at
PNC
Financial
Services.
“PNC
still
thinks
recession
is
the
more
likely
outcome
in
2024,
but
it
is
a
close
call.”

Key
to
whether
the
so-called
landing
is
soft
or
hard
will
be
the
consumer,
who
collectively
accounts
for
nearly
70%
of
all
U.S.
economic
activity.

On
that
front,
there
was
another
round
of
good
news
Friday:
The
University
of
Michigan’s
closely
watched

consumer
sentiment
survey
showed
that
inflation
expectations,
a
key
economic
variable
for
prices,
plummeted
in
December.
Respondents
put
one-year
inflation
expectations
at
3.1%,
a
stunning
1.4
percentage
point
drop.

However,
such
gauges
can
be
“fluky”
and
are
not
in
line
with
some
other
signals
coming
from
consumers,
said
Liz
Ann
Sonders,
chief
investment
strategist
at
Charles
Schwab.
Debates
over
soft
landings
and
inflation
expectations
and
interest
rate
outlooks
tend
to
miss
bigger
points,
Sonders
added.

Prior
to
2023,
Sanders
and
Schwab
had
been
stressing

the
notion
of
“rolling
recessions,”
meaning
that
contractions
could
hit
certain
sectors
individually
while
not
dragging
down
the
economy
as
a
whole.
The
distinction
may
still
apply
heading
into
2024.

“The
recession
versus
soft
landing
debate
sort
of
misses
the
necessary
nuances
of
this
unique
cycle,”
Sonders
said.
“A
best-case
scenario
is
not
so
much
a
soft
landing,
because
that
ship
has
already
sailed
for
[some]
segments.
It’s
that
we
continue
to
roll
through
such
that
if
and
when
services
gets
hit
more
than
the
brief
ding
so
far
and
it
takes
the
labor
market
with
it,
you’re
already
in
stabilization
or
recovery
mode
in
areas
that
already
took
their
big
hits.”

Getting
to
the
soft
landing,
then,
likely
will
require
navigating
some
of
those
peaks
and
valleys,
none
more
so
than
establishing
confidence
that
inflation
really
has
been
vanquished
and
the
Fed
can
take
its
foot
off
the
brake.
Inflation,
according
to
the
Fed’s
preferred
gauge,

is
running
at
3.5%
annually,
well
above
the
central
bank’s
2%
goal,
though
is
consistently
falling.

There
was
one
other
good
piece
of
inflation
news
Friday:
Rental
costs
nationally
declined
0.57%
in
November
and
were
down
2.1%
year
over
year,
the
latter
being
the
biggest
slide
in
more
than
3½
years,

according
to
Rent.com.

However,
one
interesting
development
from
the
latest
economic
data
was
a
bit
less
market
confidence
that
the
Fed
will
be
cutting
interest
rates
quite
as
aggressively
as
traders
previously
believed.

While
the
traders
in
the
fed
funds
futures
space
still
roundly
expect
that
the
Fed
is
done
hiking,
it
now
expects
only
about
a
45%
chance
of
a
previously
expected
cut
in
March,
according
to

CME
Group
data.
Traders
previously
had
been
expecting
1.25
percentage
points
worth
of
cuts
in
2024
but
lowered
that
outlook
as
well
to
a
toss-up
with
just
a
full
point
of
decreases
following
the
data
releases.

That
may
in
itself
seem
like
only
a
nuanced
change,
but
the
move
in
pricing
reflects
uncertainty
over
whether
the

Fed
keeps
talking
tough
on
inflation,
or
concedes
that
policy
no
longer
needs
to
be
as
tight.
The
fed
funds
rate
is
targeted
in
a
range
between
5.25%
and
5.5%,
its
highest
level
in
more
than
22
years.

“The
key
thing
though,
from
a
broader
perspective,
is
that
they
can
cut
if
the
economy
were
to
see
more
of
a
slowdown
than
we
expect.
Then
the
Fed
could
cut,
could
provide
some
support,”
Jan
Hatzius,
chief
economist
at
Goldman
Sachs,
said
Friday
on
CNBC’s
“Squawk
on
the
Street.”
“That
means
the
risk
of
recession
is
in
my
view
quite
low.”

Goldman
Sachs
thinks
there’s
about
a
15%
chance
of
a
recession
next
year.

If
that
forecast,
which
is
about
the
standard
probability
given
normal
economic
conditions,
holds
up,
it
will
require
continued
strength
in
the
labor
market
and
for
consumers.

Periods
of
labor
unrest
this
year
indicate,
though,
that
not
all
may
be
well
on
Main
Street.

“If
things
were
going
great,
then
people
would
not
be
marching
in
the
cold
and
rain
because
they
want
more
pay
because
the
cost
of
living
is
going
up,”
said
Giacomo
Santangelo,
an
economist
at
job
search
site
Monster.

Workers
won’t
need
economists
to
tell
them
when
the
economy
has
landed,
he
added.

“The
alleged
definition
of
a
soft
landing
is
to
bring
inflation
down
to
2%
to
2½%
and
have
unemployment
go
up
to
that
full
employment
level.
That’s
really
what
we’re
looking
for,
and
we’re
not
there
yet,”
Santangelo
said.
“When
you’re
on
an
airplane,
you
know
what
it
feels
like
when
a
plane
lands.
You
don’t
need
the
person
in
the
cockpit
to
come
on
and
go,
‘Alright,
we’re
going
to
be
landing
now.”

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