Good news: The ‘hard landing’ forecasters got it wrong
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Forecasting the economy is tricky, especially in the era of social media, 24-hour news and, of course, a pandemic that broke everyone's yardsticks for measuring and predicting progress. But as we wind down 2024, one thing appears clear: The naysayers on Team Hard Landing got it wrong.
And thank goodness they did! The US economy right now is defying all the odds. Which is not to say it's perfect or that every American is thriving.
But two key components, employment and prices, are settling into healthy levels where jobs are abundant, wages are growing and inflation is largely back to its pre-pandemic norm. On top of that, the stock market is notching back-to-back record highs, reflecting investor optimism.
"If this is not a soft landing, what is?" wrote Sung Won Sohn, professor of finance and economics at Loyola Marymount University, following Friday's way-better-than-expected September jobs report.
The "soft landing" versus "hard landing" metaphor, perhaps overused but visually handy, refers to the economy as an airplane and the Fed as the pilot. Pull the right levers at the right time, and you get a nice comfortable soft landing, with inflation cooling and the labor market thriving. Mess up, and you trigger a recession.
After a winning September, Wall Street is starting the notoriously weak month of October on a negative note.
Peter Morgan/AP
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"The hard-landing advocates, who said we'd have to suffer high unemployment to bring down inflation, were wrong," Aaron Sojourner, a labor economist at the W.E. Upjohn Institute for Employment Research, told me. "Inflation is dead and jobs are alive."
Of course, the metaphor isn't something out of an Econ 101 textbook. The Fed doesn't send out some kind of official defcon status when the metaphorical landing gear of the economy makes touchdown. And, much like a recession, it may only be confirmed in hindsight.
Right now, we have stable prices and maximum employment.
"How long the economy has to ‘stay' in that state for everyone to relax is fuzzy," Sojourner notes. "A few more months would be great."
The weeks and months ahead could always shift the economic picture, but Friday's barnburner of a jobs report eased a lot of economists' nerves about July's jobs report, which looked gloomy before an upward revision Friday.
ICYMI: Employers added 254,000 jobs in September, according to data released Friday by the Bureau of Labor Statistics, far more than the consensus expectation of 140,000, and the unemployment rate dropped to 4.1% from 4.2%.
"Honestly, there's not much to say here other than that fears the job market had slowed turned out to be a statistical illusion due to incomplete data," economist Justin Wolfers wrote on X. Over the past three months, the monthly job gains averaged 186,000, "which is pretty much where you want it," he added.
Some folks from the pessimist camp are even admitting they got it wrong. Bill Dudley, the former president of the Federal Reserve Bank of New York and a prominent voice among hard-landing forecasters, wrote this week that even he got it wrong.
"I've been too pessimistic about the risks of a so-called hard landing for the US economy over the past few years," he wrote in an op-ed for Bloomberg. "It's fair to say that … a recession remains very much in doubt."
To be clear, it's not as if Dudley was rooting for a recession. He was far from alone in thinking that a soft landing was little more than a fantasy. As former Treasury Secretary Larry Summers told Bloomberg: "Soft landings are the triumph of hope over experience, but sometimes hope does triumph over experience."
And while Dudley and Co. may be retreating, they're not saying we're in the clear. It all depends on the labor market remaining strong.
At least one economist thinks it's time to find a new metaphor.
"We should just drop the soft landing versus hard landing discourse and start talking about a robust expansion at mid-cycle," Joe Brusuelas, chief economist at RSM, told Schwab Network in an interview. A recession, he added, is "just not happening."
