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If there’s a U.S. economic slowdown, will it be a hard or soft landing?

Global stocks took a hit recently amid fears that the U.S. economy was faltering.

A weaker than expected jobs report, with a rising unemployment rate, was enough for some investors to come to their own conclusions about a coming recession – even if many economists didn’t share the same concerns.

Goldman Sachs raised its odds of a recession occurring in the next year from 15 percent to 25 percent. Some economists have theorized that the economy will have a soft landing, or a slowdown that doesn’t bring about an outright recession, or hard landing.

A complication for economists is that the labor force grew. More Americans entered the job market and looked for work. Those who are on the sidelines and looking for work are officially counted amid the ranks of “unemployed” in federal data, thereby boosting the unemployment rate.

Q: If there’s a U.S. economic slowdown, will it be a hard or soft landing? 

Economists

Ray Major, economist

Soft: The recent slowing of the economy evidenced by layoffs, reduction in consumer spending and the correction in the stock market all point to a looming economic correction. The real question is how willing and how quickly the Fed will use monetary policy to correct the economy in order to avoid a hard landing. In the past five years, it has successfully used the tools at their disposal to stave off a recession at any cost and seem to be poised to do it again.

Caroline Freund, UC San Diego School of Global Policy and Strategy

Soft: Although the jobs market has weakened, unemployment remains relatively low and consumer confidence is stable.  The Fed is poised to lower interest rates if the inflation rate continues to fall. However, risks remain and a recession could become a self-fulfilling prophecy if we keep fretting about the landing. Uncertainty leads consumers to delay purchases and businesses to hold back on investment and hiring. So, I am staying optimistic and focusing on the bright spots.

Kelly Cunningham, San Diego Institute for Economic Research

Hard: Flattening of the yield curve (the difference between long and short-term interest rates of bonds), after being inverted the previous two years, signals looming recession. Overspending fabricated dollars and escalating debt combine to make the recession even more severe. Rising unemployment and falling equity prices signal greater downturn as well. The Fed lowering interest rates will cause the money supply to further increase and result in even more inflation following already significantly risen consumer prices.

James Hamilton, UC San Diego

Soft: There are certainly plenty of worries, including bad commercial real estate loans, weakness in the Chinese economy, and conflicts in Ukraine and the Middle East that could easily blow up. The election outcome may bring destabilizing new tariffs or taxes. But based on what has happened so far, if we can avoid a major new disruptive shock, I think the most likely outcome is that we’ll see a slowdown without a recession in 2025.

Norm Miller, University of San Diego

Soft: Hard or soft is in the eye of the beholder. The housing/mortgage industry has been in a recession for a few years, but the overall economy has been so gung ho on AI and the promise of higher productivity that the overall GDP stats, next year, should be mildly negative, if at all. Lower interest rates could help some sectors, such as housing and car buying, so let’s hope the Fed lowers rates in September by 50 basis points.

David Ely, San Diego State University

Soft: The probability of a recession has increased over the past month, but the overall economy remains reasonably healthy. The number of unemployed workers increased in July, but that is in part due to more people entering the labor force. GDP growth over the past eight quarters has been positive. The Federal Reserve is widely expected to lower Interest rates starting in September, which will encourage greater borrowing and spending.

Alan Gin, University of San DiegoSoft: With the latest inflation report showing the rate of inflation falling, the Federal Reserve now has the leeway to be aggressive with rate cuts, and I expect them to do so. There probably will be three rate cuts by the end of the year. That will help the housing market and with rising consumer debt. Despite the rise in unemployment, the labor market is not in a downturn, as job growth remains positive, albeit at a slower pace.

Executives

Phil Blair, Manpower

Soft: The Federal Reserve has a great job monitoring our inflation rate over the last few years. Short any huge calamity, we have survived wars, storms and fires and the U.S. economy and stock market have continued to hum along.

Gary London, London Moeder Advisors

Soft: The weakening of the key indicators is economic music to my ears. It is the outcome the Feds targeted to produce the soft landing. My sector, real estate, has effectively been in recession. The fact that we are now on the cusp of a cut in the Fed rate will certainly cause a concomitant decrease in long-term mortgage rates, marking the beginning of a resurgence in transaction volume, activating the vital construction market.

Bob Rauch, R.A. Rauch & Associates

Soft: The economy can avert a recession with a few interest-rate drops soon. However, we are facing record debt and deficit spending. We must start running the country like a business, or the next recession will be profound, long and painful. The lockdowns of 2020 put us into a short but deep recession. If we want a deep, prolonged recession later in this decade, we should continue the mismanagement of our economy.

Austin Neudecker, Weave Growth

Soft: While too early to tell, I will vote hopefully that the economy lands softly. Some portion of the recent jobs report is due to new people searching for jobs that were previously considered out of the market. Luckily, the central bank has built space to reduce interest rates. Most economic indicators remain strong and barring large extraneous factors, we should be able to guide the landing.

Chris Van Gorder, Scripps Health

Hard: Not much has changed in the overall economic big picture, but higher interest rates are probably now having their full effect, and we may see slowdowns in parts of the economy. The biggest risk to our economy would be from a shock such as a broader war in the Middle East, a turn in the Ukraine war or other unknown risks. Such shocks have historically had the power to drive slowdowns or outright recessions.

Jamie Moraga, Franklin Revere

Hard: The U.S. economy continues to show mixed signals and increased volatility. While it may experience signs of a soft landing this year, there’s an increased possibility that we could see a recession in 2025. Global strife and uncertainty, rising cost of living, prolonged inflation, and increasing household debt have spooked investors. While the economy currently remains resilient, higher interest rates and a weakening jobs report contribute to an economy that remains unpredictable.

Not participating this week:Haney Hong, San Diego County Taxpayers Association

Have an idea for an Econometer question? Email me at phillip.molnar@sduniontribune.com. Follow me on Threads: @phillip020