Finance Link Heating

The debate about recession or soft landing is hot right now. Overall, the jobs market is doing its part to get the economy to a soft landing; on the flip side, the notion of "rolling recessions," meaning that contractions could hit certain sectors individually while not dragging down the economy as a whole is still hanging there. The distinction may still apply heading into 2024.

We think the debate is all about consumers and inflation. The key to whether the so-called landing is soft or hard will be the consumer, who collectively accounts for nearly 70% of all US economic activity.

In the soft landing camp, economists think they have seen a very strategic consumer emerge over the past year, the consumers’ spending willingness is very strong amid deflationary environment. Although wage growth, which is one of the important drivers of high inflation and also the critical indicator the Fed watch closely, has showed signs of cooling off, still keep rising. That gives the consumer strong purchasing power.

In inflation side, economists in the soft landing camp argue that inflation is increasingly cooling off from the record level in June last year, toward 2% of the Fed's target. Also the level of job creation was just above the estimate, 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.