Ready for a Soft Landing?

According to last week’s employment report, U.S. job growth slowed down faster than expected in October, as strikes against Detroit’s automakers led to a decline in manufacturing jobs. The economy added 150,000 payrolls last month, marking the second lowest gain since January 2021. Economists had expected 180,000 new jobs, after the labor market had proven stronger than expected in the previous two months. Employment gains for August and September were revised down by 62,000 and 39,000, respectively, however, meaning that total employment going into October was 101,000 jobs lower than previously reported.

These numbers along with a slight uptick in the unemployment rate, which stood at 3.9 percent in October, and a slowdown in nominal wage growth all point towards a cooling of the labor market, increasing the odds of the Fed refraining from further rate hikes for now. More importantly, the latest jobs report, which some described as “very Fed-friendly”, fueled hopes of a so-called soft landing, i.e. a scenario in which the Fed manages to bring down inflation without plunging the economy into recession and a period of high unemployment. Pointing in the same direction is the latest GDP report, which showed an acceleration of economic growth in the third quarter, thanks to growing consumer confidence in light of cooling inflation.

As our chart illustrates, many key indicators are currently moving in the right direction to fuel hopes of a soft landing. The most important one, the Consumer Price Index for October, won’t be released until next week, however. If it fails to show further moderation in inflation, those hopes will be dashed or dampened at least.