A US soft landing remains in play

{"text":[[{"start":8.21,"text":"After a dramatic sell-off, relative calm has returned to global financial markets — for now at least. "},{"start":14.177,"text":"Behind the jitters are investors who are questioning whether the American economy will achieve a long-expected “soft-landing” (where inflation returns to target without a significant slowdown). "},{"start":23.419,"text":"That assumption had helped push the S&P 500 to a record high by mid-July. "},{"start":28.162000000000003,"text":"Weak jobs data and the US Federal Reserve’s decision to hold interest rates at their peak last week stoked doubts. "}],[{"start":35,"text":"Stepping back, the US is not in a recession nor is one necessarily imminent. "},{"start":39.867,"text":"Initial fears that the rout in financial markets could slow the real economy via a self-reinforcing downward spiral of selling have been averted as traders have started buying again. "},{"start":49.084,"text":"The weaker-than-expected US employment data for July, released on Friday, is also no immediate cause for alarm. "},{"start":55.814,"text":"The jobless rate has risen 0.6 percentage points since January, but part of the pick-up has been driven by more people entering the workforce. "}],[{"start":64.46000000000001,"text":"Still, the American economy is cooler than markets and the Fed had perhaps appreciated. "},{"start":69.627,"text":"Indeed, the weak employment numbers should focus minds on the broader slowing under way in America. "},{"start":74.832,"text":"Take US consumers. "},{"start":76.437,"text":"Recent estimates suggest that excess savings from the pandemic — which helped prop up spending — have run dry. "},{"start":82.467,"text":"Annual spending is now growing faster than income, which is not sustainable. "},{"start":86.747,"text":"As it is, the credit card delinquency rate has surpassed pre-2020 levels. "},{"start":91.614,"text":"And while households are spending strongly, the bulk of it appears to be on non-discretionary items including high rents, utilities, and healthcare. "}],[{"start":null,"text":"

"}],[{"start":100.66,"text":"Next, a slew of forward-looking indicators point to an easing in economic momentum. "},{"start":105.589,"text":"An index of new orders in the manufacturing sector has been in contractionary territory since April. "},{"start":110.807,"text":"Weekly initial jobless claims, a timelier measure of stress in the labour market, have been trending upward and last week hit their highest in almost a year. "},{"start":118.574,"text":"Small businesses, which tend to feel the pinch of high rates first, have also been slashing their hiring plans. "},{"start":124.542,"text":"They employ just under 50 per cent of the US workforce. "}],[{"start":128.82,"text":"The past few weeks of market convulsions are a reminder for investors and policymakers of the need to scrutinise a wider array of economic data points. "},{"start":136.987,"text":"Pollyanna-ish narratives about the economy can be blinding. "},{"start":140.204,"text":"Political uncertainty — including a close presidential race — and data issues have not helped the forecasting process either. "},{"start":146.85899999999998,"text":"For instance, jobs growth has been flagging according to the Household Survey, but is rising steadily on the non-farm payroll indicator. "}],[{"start":null,"text":""}],[{"start":155.23,"text":"The Fed and investors have been waiting all year for signs that higher interest rates are squeezing the economy. "},{"start":160.884,"text":"The signals are getting clearer. "},{"start":162.72699999999998,"text":"The problem is that economies do not slow in a linear fashion. "},{"start":166.307,"text":"Redundancies, bankruptcies, and foreclosures nudge up, and then tend to spiral. "},{"start":171.474,"text":"The impact of higher rates comes with a lag, but when it shows up, distress can rise quickly. "}],[{"start":177.25,"text":"Further data on American jobs, inflation and economic activity is due before the Fed next meets in September. "},{"start":183.729,"text":"That may trigger more repricing — upwards or downwards. "},{"start":187.13400000000001,"text":"Either way, the Fed should avoid any emergency intervention that could ignite more panic. "},{"start":191.889,"text":"A rate cut at its next meeting, however, looks necessary, or the central bank risks over-restricting demand. "},{"start":198.319,"text":"A 50 basis point cut should also remain an option. "}],[{"start":201.91,"text":"It is reassuring that the Fed is in a position to focus more on the other side of its dual mandate; to support employment. "},{"start":208.277,"text":"Price pressures are easing, and annual PCE inflation in June fell to within half a percentage point of the 2 per cent target. "},{"start":215.094,"text":"Economic growth is not falling off a cliff, but signs of a slowdown are clear. "},{"start":219.499,"text":"The soft landing remains in place, but the runway is shorter than many had thought. "}],[{"start":223.91,"text":""}]],"url":"https://creatives.ftacademy.cn/album/166655-1723086676.mp3"}