By Michael Bright
The latest data lends credence to our belief expressed here that the economy is on path to have a light recession rather than a hard or tough one.
The most important indicator was the Consumer Price Index announced during the week of February 13. The U.S. Bureau of Labor Statistic reported that the CPI rose 0.5 percent in January on a seasonally adjusted basis, after increasing 0.1 percent in December. The good news for the economy was a different, longer-term number. Over the last 12 months, the index increased 6.4 percent before seasonal adjustment, which was down slightly from an annual rate of 6.5 percent in December and a 40-year high of 9.1 percent in June. In other words, the annual inflation rate is cooling, which is exactly what the Federal Reserve wants to occur in response to its steady increases in interest rates. The Central Bank still has a long way to go to hit its annual-inflation-rate target of 2 percent. But a slowdown of inflation is a good sign along the way. The lower inflation is, the fewer interest-rate hikes the Fed will have to impose and the less crushing those higher rates will have on the average American and the overall economy. Another indicator provided a sign of economic resilience that week. The jobs report for January from the Labor Department showed that nonfarm payrolls increased by 517,000, far higher than the market experts’ estimate of 187,000. The unemployment rate fell to 3.4 percent, which was the lowest jobless level since May 1969.
The surge in job creation came despite the Fed’s efforts to slow the economy – and inflation – with those interest-rate increases. But the rise in people with jobs suggests that the economy can slow down without putting too many Americans out of work. That would be a far less painful outcome from the Fed’s actions – a soft landing for the economy rather than a hard one.
I am still betting that soft version will be the result.