Pay Attention When the Job Growth Dog Barks

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There has been surprisingly little worry reported by advisors and readers in the past couple of weeks. With the headlines in play—bank failures, a recession coming, commercial real estate starting to crash, and so forth—I would have expected more concerns. But it seems that people are realizing that, despite all the headlines, things are actually not all that bad.

What’s Going On?

For example, consumer confidence ticked up the other day, driven by better expectations for the future. Not only do people feel pretty good today, they’re also starting to feel better about what’s ahead. There are now stories coming out about how, in the Midwest in particular for some reason, people simply don’t care about the negative headlines and are out there working, spending, and having fun. As long as the jobs are there, according to the headlines, people are getting on with their lives.

This leaves our community here with a bit of a split. I had been in the “no recession” camp for a while, driven by the strong labor market (just as those Midwest headlines are calling out). With the banking situation (I won’t call it a crisis), however, I have moved over to the recession camp, as banks will be cutting back on lending and making it harder to borrow. So, in that sense, I am more concerned. At the same time, many folks seem to be less concerned overall. I am getting fewer calls for collapse, although I am still getting worries about a pending recession. What’s going on?

Soft Landing Ahead?

The right answer, as usual, is somewhere in the middle. As banks pull back to rebuild their capital base, we will see slower growth. On balance, this is a good thing. Tighter financial conditions from the banks make it less necessary for the Fed to keep raising rates. The economic effect of those tighter conditions will also be offset by the strong labor market, although not completely. In other words, while we likely will get a recession, it will be a mild one—and one that doesn’t really hit the average person.

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