UNITED STATES NEWS

A ‘soft landing’ or a recession? How each one might affect America’s households and businesses

Dec 8, 2023, 2:20 PM

File - Social worker Lupita Armijo-Garcia works at her desk in the Ottawa County, Mich., Department...

File - Social worker Lupita Armijo-Garcia works at her desk in the Ottawa County, Mich., Department of Public Health office, Tuesday, Sept. 5, 2023, in Holland, Mich. On Friday, the U.S. government issues its November jobs report. (AP Photo/Kristen Norman, File)
Credit: ASSOCIATED PRESS

(AP Photo/Kristen Norman, File)

WASHINGTON (AP) — The solid hiring revealed in Friday’s jobs report for November, along with a raft of other recent economic data, is boosting hopes that the U.S. economy will achieve a “soft landing” next year rather than a widely feared recession.

A so-called soft landing would occur if the economy slowed enough to bring inflation down to the Federal Reserve’s 2% target, without tumbling into a deep recession.

It’s a tricky task. The Fed has sharply raised its key interest rate to try to moderate borrowing and spending and tame inflation. The risk is that the Fed would miscalculate and keep its benchmark rate — which affects many consumer and business loans — too high for too long and end up causing a recession.

In the past, the Fed’s policymakers have often sought to engineer soft landings after a spurt of economic growth ignited inflation or threatened to do so. Most frequently, the Fed has failed.

What would a soft landing look like, compared with a potential recession?

JOBS

In a soft landing, employers would likely keep hiring, even at a more moderate pace. Job growth could weaken as the Fed’s high rates weigh on the economy. Many analysts envision growth weakening to about 1% next year from a pace of about 2.4% this year.

In some months, hiring could fall below the number that is needed just to keep up with population growth, which is about 100,000. The unemployment rate would likely rise from its current level of 3.7%, near a half-century low. The Fed expects the jobless rate to reach 4.1% by the end of 2024, even without a recession.

Yet in a recession, the scenario is much worse. Employers typically cut millions of jobs. Even in a mild downturn, like the one that occurred in 2001, the unemployment rate topped 6%.

INFLATION

In a soft landing, price increases should gradually ease to a yearly pace of about 2%. That doesn’t mean the costs of everyday necessities would actually drop; groceries are about 25% pricier than they were before the pandemic. But over time, wages should continue to rise enough to boost Americans’ purchasing power.

In a recession, by contrast, inflation would almost certainly fall faster. That’s because spending would decline and companies would be forced to hold prices down in the face of falling demand. In the 1970s, though, even recessions weren’t enough to defeat inflation, leading to the phenomenon known as “stagflation.” Fortunately, few economists expect that to return next year.

INTEREST RATES

As inflation edges closer to 2%, the Fed will likely cut its key rate next year. That should bring down the costs of a mortgage, auto loan or business loan. Still, in a soft landing, borrowing costs would likely stay higher than in a recession. That’s because in a recession, the Fed would likely cut its key rate even further.

A big question for the future of the economy is whether interest rates will drop back to their ultra-low pre-pandemic levels, when the average 30-year mortgage rate occasionally fell as low as 3%. Some economists think an aging population, slower growth and global demand for Treasury bonds and notes will keep interest rates low.

Other economists argue that high U.S. government budget deficits, a retreat from globalization and potentially faster growth will keep rates higher than they were before the pandemic.

CORPORATE PROFITS

Profits at companies in the S&P 500 rose 5% in the third quarter, after three straight quarters of declines. The consensus among analysts surveyed by the data research company FactSet is that profits should continue growing in 2024 thanks to a resilient economy and could possibly hit an annual record.

In a recession, however, profits — and stock prices — typically fall. Analysts at JPMorgan say “a U.S. recession next year remains a live risk,” and that a potential drop in consumer demand, along with the inability of companies to keep raising prices, could lead to a deterioration in corporate earnings.

___

AP Business Writer Stan Choe in New York contributed to this report.

United States News

Associated Press

Rapidly expanding wildfires in the Texas Panhandle prompt evacuations

CANADIAN, Texas (AP) — Surging wildfires fueled by strong winds and dry grass in unseasonably warm temperatures prompted safety warnings for residents of several towns and at least one evacuation order in the far northern part of the Texas Panhandle on Tuesday. Texas Gov. Greg Abbott issued a disaster declaration for 60 counties and ordered […]

39 minutes ago

Associated Press

Lawsuit claims isolation and abuse at Wyoming Boys School

CHEYENNE, Wyo. (AP) — Staff at Wyoming’s state youth detention facility locked juveniles in solitary confinement for weeks at a time, repeatedly buckled one in a restraint chair for up to 12 hours a day and poked fun at another while withholding the leg brace he needed for his disability for months, a federal lawsuit […]

44 minutes ago

Associated Press

NTSB: Engine oil warnings sounded moments before jet crash-landed on Florida highway, killing 2

ST. PETERSBURG, Fla. (AP) — Moments before the deadly crash of a charter jet on a Florida highway, three warnings about oil pressure problems in its two engines sounded, the National Transportation Safety Board said in a preliminary report Tuesday. The Bombardier aircraft flying from Ohio with five people aboard was cleared to land at […]

59 minutes ago

FILE - U.S. MV-22B Osprey transport aircraft are parked at the U.S. Marine Corps Air Station Futenm...

Associated Press

Services prepare to brief Secretary Austin on a plan to get Ospreys flying again

WASHINGTON (AP) — The military services will take a key step toward getting the V-22 Osprey fleet back in the air as they lay out their plans Friday to Defense Secretary Lloyd Austin for addressing safety concerns stemming from a fatal crash in Japan, three defense officials said. The U.S. fleet of about 400 Osprey […]

1 hour ago

Associated Press

Federal prosecutors take over case against man charged with threatening Virginia church

MANASSAS, Va. (AP) — Federal prosecutors have taken over the case against a northern Virginia man arrested last year on suspicion he was about to embark on a mass shooting at a megachurch. Local prosecutors in Prince William County on Tuesday dropped charges against Rui Jiang, 35, of Falls Church, including a charge of attempted […]

2 hours ago

Associated Press

A mower sparked a Nebraska wildfire that has burned an area roughly the size of Omaha, officials say

OMAHA, Neb. (AP) — A mower sparked a prairie fire that has burned a huge swath of grassland in central Nebraska roughly the size of the state’s largest city of Omaha, state officials said Tuesday. The fire, first reported Monday morning less than 10 miles (16.1 kilometers) northeast of North Platte, destroyed one home, damaged […]

2 hours ago

Sponsored Articles

...

Midwestern University

Midwestern University Clinics: transforming health care in the valley

Midwestern University, long a fixture of comprehensive health care education in the West Valley, is also a recognized leader in community health care.

...

Collins Comfort Masters

Avoid a potential emergency and get your home’s heating and furnace safety checked

With the weather getting colder throughout the Valley, the best time to make sure your heating is all up to date is now. 

...

Sanderson Ford

The best ways to honor our heroes on Veterans Day and give back to the community

Veterans Day is fast approaching and there's no better way to support our veterans than to donate to the Military Assistance Mission.

A ‘soft landing’ or a recession? How each one might affect America’s households and businesses