Such high-profile economists as Janet Yellen, Paul Krugman, and Larry Summers have been saying that a so-called soft landing — reduction of inflation without a recession — seemed more certain. Inflation was slowing, consumers kept spending more, and the job market continued strong.
But over the last few weeks, with a variety of data points on consumers and some worrying events that have queued up to raise the question of whether the confidence is well placed. As Bloomberg wrote, even with a government shutdown averted — for now, that is, in a fragile temporary compromise that could break down by just before Thanksgiving — there is the UAW strike expanding to new targets, and the restart of student loan payments. In the worst case, those three factors alone could cut a 100 basis points off Q4 GDP.
They also aren't the only considerations. U.S. growth is below the nominal federal funds rate, which is typically a bad sign. According to research from the San Francisco Fed, the excess savings from pandemic emergency payments are just about gone. Credit card debt, which had dropped just a couple of years ago, is now at record highs.
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Multiple surveys show falling consumer confidence and lowered expectations for the near future. Many are planning to cut back on spending, which is 68% of GDP, and that's before factoring in an energy price surge. Cut back there and a recession is more likely. And yields on Treasurys have been going up, which means higher interest rates all around.
Bloomberg also noted that a number of correlated signs associated with coming recessions were in evidence. Bloomberg Economics modeled unemployment and found that things seem to be moving on a path toward higher unemployment, which is correlated with a higher chance of a recession.
The effects of the Fed's actions to drive up interest rates significantly lag the increases by 18 to 24 months. The country is only coming up to the time when the first of the full effects would come into play, which could slow the economy down.
Even predictions of a soft landing are typically one of the last things you hear before a recession comes in because optimism flares up. Janet Yellen, among others, predicted a soft landing in October 2007. By year's end, the Great Recession started.
Cross your fingers.
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