Current:Home > MyA ‘soft landing’ or a recession? How each one might affect America’s households and businesses-LoTradeCoin
A ‘soft landing’ or a recession? How each one might affect America’s households and businesses
View Date:2024-12-23 15:44:28
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.
veryGood! (1964)
Related
- Controversial comedian Shane Gillis announces his 'biggest tour yet'
- Chrysler recalls nearly 45,000 vehicles because interior trim may interfere with air bags
- Sandra Bullock Shared Rare Insight Into Her Relationship With Bryan Randall Over a Year Before His Death
- Mississippi GOP Gov. Tate Reeves will face Democrat Brandon Presley in the November election
- Avril Lavigne’s Ex Mod Sun Is Dating Love Is Blind Star Brittany Wisniewski, Debuts Romance With a Kiss
- Biden to establish national monument preserving ancestral tribal land around Grand Canyon
- Flights and ferries halted in South Korea ahead of storm that’s dumped rain on Japan for a week
- Sinéad O'Connor Laid to Rest in Private Ceremony Attended by U2's Bono
- Kyle Richards Shares an Amazing Bottega Dupe From Amazon Along With Her Favorite Fall Trends
- COVID-19 hospitalizations in the US are on the rise again, but not like before
Ranking
- Trump hammered Democrats on transgender issues. Now the party is at odds on a response
- Man fatally shot by police officer in small southeast Missouri town
- Jay-Z's Made in America 2023 festival canceled due to 'severe circumstances'
- The Visual Effects workers behind Marvel's movie magic vote to unionize
- Reds honor Pete Rose with a 14-hour visitation at Great American Ball Park
- A former Fox executive now argues Murdoch is unfit to own TV stations
- Who is sneaking fentanyl across the southern border? Hint: it's not the migrants
- Banks get a downgrade from Moody's. Here are the 10 lenders impacted.
Recommendation
-
Birth control and abortion pill requests have surged since Trump won the election
-
Bill Clinton’s presidential center expanding, will add Hillary Clinton’s personal archives
-
What extra fees can you face when buying a car?
-
Missouri grandfather charged in 7-year-old’s accidental shooting death
-
Prominent conservative lawyer Ted Olson, who argued Bush recount and same-sex marriage cases, dies
-
Jay-Z's Made in America 2023 festival canceled due to 'severe circumstances'
-
Ex-Pakistan leader Imran Khan's lawyers to challenge graft sentence that has ruled him out of elections
-
Feds investigating power steering issue on older Ram 1500 pickups