The U.S. economy is the most robust and resilient in the world. Its resilience lies in several factors, including its diverse economic sectors, entrepreneurial spirit, innovation, strong institutions, and flexible labor market. The U.S. has a large and dynamic economy that is less dependent on a single industry, making it more adaptable to changes in the global economic landscape. Additionally, its robust financial system, protection of property rights, and rule of law provide a stable environment for businesses to thrive. The U.S. dollar is the world’s primary reserve currency, giving the U.S. certain financial flexibility and advantage.
Furthermore, the U.S. government and the Federal Reserve are pivotal in maintaining the U.S. economy’s resilience. They typically employ a range of monetary and fiscal policies to stabilize the economy during downturns. However, it’s crucial to acknowledge that no economy is immune to challenges, and the U.S. economy is no exception. It can also face vulnerabilities and fluctuations due to domestic and global factors. Invariably, the U.S. economy has demonstrated its resilience, recovering relatively well from shocks — the Great Depression of 1929, the financial crisis of 2008, and the COVID-19 pandemic — compared to other global economies.
The current state of the U.S. economy has sparked discussions about whether a ‘soft landing’ has been achieved. In economic terms, a ‘soft landing’ refers to a scenario where economic growth slows sustainably without plunging into a recession. It’s a situation where an economy transitions smoothly from rapid growth to slow but steady growth without experiencing a recession. This delicate balance between development and stability is crucial for the well-being of our nation’s economy, and understanding whether it has been achieved is a vital topic of interest.
Economists have been discussing the potential success of a soft landing in the U.S. economy in recent years. Some experts contend that the Federal Reserve’s monetary policy has effectively avoided a recession; others have identified slowing job growth and trade tensions as potential threats to continued expansion.
The U.S. economy has been facing a series of challenges, including the impact of the ongoing pandemic, inflation concerns, and supply chain disruptions. These factors have raised questions about the possibility of a soft landing or the risks of a more turbulent economic adjustment. However, recent readings of the indices point to an economy in deceleration. That is good news.
Let’s look at the metrics: The U.S. economy (GDP) expanded by 1.6% in the first quarter of 2024, while Wall Street economists expected 2.5% growth. This growth rate is the slowest in almost two years. However, the economy is not contracting either. GDP in the fourth quarter of 2023 rose by 3.4%. The threat of a growing recession loomed over the economy as the GDP growth for 2023 was 2.5% annualized.
In April 2024, the U.S. labor market retrenched, leading to a hiring and wage growth contraction. Mainstream economists had expected nonfarm payrolls to rise by 240,000, but the U.S. economy added a modest 175,000 new jobs as the unemployment rate rose to 3.9%. The ‘core’ Personal Consumption Expenditures Index (PCEI), which excludes the volatile food and energy, grew by 3.7% in the first quarter. While economists expected a monthly jump of 0.3% in wages, wages grew less, with the average hourly earning rising o.2%. Consumer confidence fell in April – at 97, its lowest since 2022. Fed chairman Jerome Powell has emphasized that the FOMC will not lower rates until the inflation rate steadily reaches 2%.
According to the U.S. Bureau of Economic Analysis (BEA), “personal income increased by $122.0 billion (0.5 percent at a monthly rate) in March. Disposable personal income (DPI) — less personal current taxes — increased by $104.0 billion (0.5 percent). Personal outlays — the sum of personal consumption expenditures (PCE), personal interest payments, and personal current transfer payments — increased by $160.9 billion (0.8 percent). Personal saving was $671.0 billion, and the personal saving rate — personal saving as a percentage of disposable personal income — was 3.2 percent in March.”
According to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau publications state, “The U.S. goods and services trade deficit decreased in March 2024. The deficit decreased from $69.5 billion in February (revised) to $69.4 billion in March, as imports decreased more than exports. The goods deficit increased by $0.8 billion in March to $92.5 billion. The services surplus increased $0.9 billion in March to $23.1 billion.”
Achieving a proper “soft landing,” where inflation comes down in a controlled way without sparking a recession, is notoriously tricky for policymakers. But the gradual nature of the slowing increases those chances. Other factors like consumer resilience, the banking system’s health, global economic conditions, and the path of interest rates—reasonably decreasing—will also play a key role in determining if the U.S. can navigate a soft landing successfully. The slowing in employment, GDP, and wage growth shows economic activity deteriorating from its recent robust pace. This change in pace can relieve inflationary pressures without causing a severe downturn. Volatility in equity markets is expected during a phase of economic deceleration as investors grapple with moderating corporate earnings and an uncertain outlook. However, markets have historically been able to look beyond these slower growth periods.
In conclusion, as the stats suggest, the ups and downs in the equity markets will persist for some time longer. However, considering the slowdown in employment, GDP, wage growth, and other relative factors, I believe the U.S. economy will soon attain—if not already—a soft landing successfully.
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Nicholas A. Owoyemi
President & CEO (Author)
Moderate Voices of America
30 Wall Street, 8th Floor
New York, New York 10005
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www.moderatevoices.org
Nicholas A. Owoyemi is also the Principal Financial Executive with American Financiers Group, LLC.