If the US economy remains strong and the US consumer continues to spend heavily, then the recent recession fears should not come true anytime soon. Yet, rate cuts should fuel a "soft landing" scenario, and inflation, if it is to return, will probably not return until Q2/Q3 2025 at the earliest.
Is this a good environment for stock market growth? This is not a classic soft landing from the 90s, but the comparison to 2019 rhymes better... In 2019, after three interest rate cuts, the S&P500 rose by another 19% from the August 2019 low to February 2020! See Figure 1.
Is the US economy strong? The Atlanta FED GDP tracker indicates growth in Q3 2024 of around 2.93%! This is probably not a recession. See Figure 2. But in 2019, the FED began cutting rates with GDP growth in Q3 2019 of around 4.61% SAAR.
Is the US consumer spending a lot? The Atlanta FED PCE tracker indicates a +3.65% increase in real consumer spending in Q3 2024! Similarly, in Q3 2019, the consumer accelerated to +4.13%. See Figure 3.
Figure 4 shows the nominal series related to consumer income and spending. The low savings rate is one source of higher spending.
Nevertheless, the labor market is gently slowing down. It was also slowly slowing down in 2019 (four months of readings below 100k). See Figure 5. Figure 6 compares Initial Claims, Continued Claims and Unemployment Rate U3. In the current cycle, the most risky outlier is the unemployment rate at 4.1%. If the labor market continues to slow, this will be the biggest risk to the soft landing scenario.
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