Ed Yardeni’s “No Landing” Scenario
Over the last several months, we’ve written a few letters about the resilience of the economy, despite the many concerns about a recession – “No Recession in Discretionary Spending” and “Recession Watch”.
Here’s a quick update:
The most discretionary kinds of spending (think restaurants, online shopping and travel) continue to expand strongly. MasterCard recently reported that restaurant spending in the US is up about 24% vs last year, e-commerce up 8%, and international travel spending is up about 30%.
But consumers aren’t spending money they don’t have, as wages continue to rise with average hourly wage gains of 4.5% vs. a year ago.
Despite many high profile layoff announcements, the job market in total continues to be strong as the unemployment rate dropped to the lowest level in more than 50 years (3.4%). That figure is often criticized since it doesn’t account for people who have stopped looking for a job. But the most recent report saw an increase in the number of people in the workforce, so these job gains are real. Private payrolls added 443,000 jobs in January, and the participation rate ticked up to 62.4%.
For months markets have been debating whether the Federal Reserve will achieve a “hard landing” or “soft landing” as it attempts to battle inflation with higher interest rates. Economist Ed Yardeni has been making the case for a different scenario: No Landing. Consumers are doing what they do best (spending), aided by ample employment opportunities and continuing wage gains. We think Ed’s scenario has been well supported by the most recent data.