Anatomy of a Recession Update: New Year, New Dynamic

As 2024 kicks off, we sit down with ClearBridge Investment’s Jeff Schulze for an update on the Recession Risk Dashboard that has recently seen some indicator moves from red to yellow and learn whether recent US economic and labor data have impacted his views on the likelihood of a soft landing.

Host: Welcome to Talking Markets with Franklin Templeton. Happy New Year to everyone. As 2024 kicks off, we’re sitting down with ClearBridge Investments’ Head of Economic and Market Strategy, Jeff Schulze. ClearBridge is a specialist investment manager of Franklin Templeton. And Jeff is the architect of the Anatomy of a Recession program, designed to provide thoughtful perspective on the state of the US economy with practical insight that you can use.

Happy New Year, Jeff. We’re excited to have you here in the studio as we kick off the new year.

Jeff Schulze: Happy New Year.

Host: So, Jeff, in 2023, your view was that a recession was forthcoming. The economy really seems to have held up to this point. Has your view changed as we enter the new year?

Jeff Schulze: Well, our view hasn’t changed, but we’ve increased the odds of a soft landing to 45% over the last quarter. You’ve had some strong economic data. You’ve seen a labor market that’s become more in balance, and you haven’t actually started to see layoffs materialize. And I think, maybe more importantly, you’ve seen a faster pace of disinflation, which allows the Fed [US Federal Reserve] to potentially cut rates to increase the odds of the economy continuing to move forward. So, while recession continues to be our base case of 55%, we think that the odds of a soft landing are getting better. But we really need to get through the next six months before we’re a little bit more confident embracing that more fully.