Nov 8, 2023

Soft Landing or Recession

Weekly Market Commentary

So far this year, forecasts for a recession or a soft landing have failed to materialize. What is a soft landing? Economic growth slows, the rate of inflation slows, but the economy stays out of a recession. In other words, the economy is not too hot or too cold.

Instead, there has been no landing. Last month, the U.S. Bureau of Economic Analysts reported that Q3 Gross Domestic Product (GDP) expanded at a robust 4.9% annualized pace.

But we are in a new quarter. Payrolls grew by a modest 150,000 in October, and the unemployment rate rose from 3.8% to 3.9%, according to the U.S. Bureau of Labor Statistics.

With the jobless rate in a gradual upward trend, are we headed into a much-elusive recession? Or is the much sought-after soft landing, the most likely scenario?

Table 2 highlights the correlation between a rising jobless rate and a recession.

Let’s use the 1960 recession as an example. Prior to the start of the recession, the jobless rate fell as low as 4.8%, it rose 0.6 percentage points before the recession began, and it took 2 months between the 4.8% low and the onset of the recession.

The average rise in the jobless rate that eventually led to a recession: 0.37 percentage points.

The average number of months from a low in the jobless rate to a recession: 6.1 months.

The unemployment rate is up 0.5 percentage points since hitting a cycle low of 3.4% in April. Past experiences suggest that the odds of a recession next year are rising. But this model isn’t ironclad. In 1986, the unemployment rate rose from 6.7% to 7.2% without an ensuing recession.

Fed Chief Powell has repeatedly said he believes economic growth must significantly slow to bring demand for goods and services back in line with supply. This would help foster the conditions needed for price stability.

A big slowdown in growth would include an upward drift in the unemployment rate. That said, the Fed has powerful tools that can stimulate or slow the economy, but it can’t fine-tune GDP, unemployment, or inflation.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Adviser and Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc., Member FINRA/SIPC. 130 Springside Drive, Suite 300, Akron, OH 44333-2431 800.765.5201 Prosperity Partners and FDP Wealth Management, LLC are separate entities from ValMark Securities, Inc. and Valmark Advisers, Inc. Prosperity Partners, FDP Wealth Management, LLC, ValMark Securities, Inc., Valmark Advisers Inc., and their representatives do not offer tax advice. You should consult your tax professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

Indices are unmanaged and do not incur fees, one cannot directly invest in an index. You should consult your tax professional regarding your individual circumstances. This information is provided by Financial Jumble, LLC. Financial Jumble, LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

RELATED POSTS

Data Disconnect

Retailers are ringing up solid earnings, but consumer confidence surveys tell a different story, suggesting the mood is far from upbeat. This disconnect raises a big question: if shoppers are still buying, as we will highlight in a moment, why do they feel so uneasy about the economy?

Buyer’s Market – With Strings Attached

Redfin reported last week that sellers are grappling with the strongest buyer’s market since the real estate brokerage firm began compiling records back in 2013. Sellers now outnumber buyers by 37%.

Investors Unfazed by Shutdown

The government shutdown lasted from October 1 to November 12. It was the longest on record. During that period, the S&P 500 rose from 6,688.46 (September 30) to 6,850.92 (November 12), or an advance of 2.4%. As we’ve noted in prior shutdowns, investors typically ignore political drama.

The Job Market’s Missing Pulse

The government shutdown has been and will always be prominently featured in the 24-hour news cycle. Travelers are feeling it, furloughed federal employees wonder when they will receive their next paycheck, and even the housing market is affected as some buyers are left in limbo.

One Cut, Two Cut: The Fed’s Delicate Balancing Act

The Federal Reserve delivered a widely expected 25-basis-point rate cut (bp, 1 bp = 0.01%), but Fed Chief Jay Powell tempered market enthusiasm by signaling that a December cut is far from certain.