Hard Landing, Soft Landing, or No Landing

In the past few weeks, a growing chorus of economists and investors have decided that the pessimistic narrative had it wrong all along, that the US isn’t headed for a hard landing, which would mean a recession, it isn’t even headed for a soft landing, which would mean a prolonged period of low economic growth.

What they think we’re going to get is no landing at all, that the US economy reaccelerates from here and does just fine. No fuss, no muss. In turn, that means the bottom for the S&P 500 back on October 12 at 3577 was the bottom for the bear market, which is already likely over.

We wish.

Instead, we think that’s a very rosy interpretation of recent economic reports. Yes, consumer spending was reported very strong for January, even when adjusted for inflation. But this is something we predicted based on unusually warm winter weather and how the policy response to COVID, including massive fiscal stimulus, has wreaked havoc with traditional seasonal adjustments, making November and December look worse by comparison and January look better.

The problem for the “No Landing” theory is that inflation remains a major problem. The Consumer Price Index is up 6.4% from a year ago, not that much of a decline versus 7.5% in the year ending in January 2022.

The Federal Reserve is following something called “SuperCore” inflation, which is part of the PCE Deflator. That figure excludes food and energy, like the regular “core,” but also excludes all other goods as well as shelter costs (where some claim that inflation measures are misjudging rents). But SuperCore PCE prices rose at 7.4% annual rate in January, the fastest increase for any month since 2021. SuperCore PCE prices are up 4.6% in the past twelve months, barely lower than the 5.0% increase in the year ending January 2022.