Being October and playoff baseball time, it seems appropriate to borrow my title from the late great Yankee, Yogi Berra. Reviewing my economic summaries over the past two years does feel a lot like a case of déjà vu. The seemingly endless recession/soft landing debate continues to drag on.
This summer brought about some slower economic data points that hinted at a possible inflection point and downturn in the direction of the economy. Then came September’s blowout labor data. According the Bureau of Labor Statistics, the economy added a robust 254,000 jobs and the unemployment rate dropped to 4.1%. The latest estimate of Gross Domestic Product (GDP) shows the economy growing at a 3% real (above inflation) rate. Both data points are more consistent with the soft-landing scenario.
Inflation, as measured by the Consumer Price Index, came in at a 2.4% annual pace from September 2023 – September 2024. This is still above the Fed’s 2% target but close enough for them to continue to lower their target Fed funds rate at gradual pace in hopes of achieving the soft-landing. At present, it seems the odds of success are better than 50%.
However, we remind investors that labor and economic data can turn quickly. As the chart below shows, the slope of the yield curve has just recently normalized after two years of inversion. That is, the yield on the 10-year Treasury has moved back above the yield on the 2-year Treasury. An inverted yield curve is one of the most popular signals of a potential recession. As the chart below shows, recessions (grey bars on the chart) often start after the yield curve has normalized.
With this in mind and considering we are just weeks away from a contentious election, we suggest you keep your seats belts fastened.
This summer brought about some slower economic data points that hinted at a possible inflection point and downturn in the direction of the economy. Then came September’s blowout labor data. According the Bureau of Labor Statistics, the economy added a robust 254,000 jobs and the unemployment rate dropped to 4.1%. The latest estimate of Gross Domestic Product (GDP) shows the economy growing at a 3% real (above inflation) rate. Both data points are more consistent with the soft-landing scenario.
Inflation, as measured by the Consumer Price Index, came in at a 2.4% annual pace from September 2023 – September 2024. This is still above the Fed’s 2% target but close enough for them to continue to lower their target Fed funds rate at gradual pace in hopes of achieving the soft-landing. At present, it seems the odds of success are better than 50%.
However, we remind investors that labor and economic data can turn quickly. As the chart below shows, the slope of the yield curve has just recently normalized after two years of inversion. That is, the yield on the 10-year Treasury has moved back above the yield on the 2-year Treasury. An inverted yield curve is one of the most popular signals of a potential recession. As the chart below shows, recessions (grey bars on the chart) often start after the yield curve has normalized.
With this in mind and considering we are just weeks away from a contentious election, we suggest you keep your seats belts fastened.
