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Opinion ‘Soft landing’ is a terrible name for what’s coming

A home for sale in Atlanta on Nov. 13. (Elijah Nouvelage/Bloomberg News)

A year ago, Federal Reserve Chair Jerome H. Powell finally said it was time to quit using the word “transitory” to describe inflation, which clearly wasn’t going to be a short-lived phenomenon. It would be equally wise to banish the term “soft landing” from our vocabularies.

Hardly a day goes by without a Wall Street expert or prominent economist weighing in on whether the United States will experience a soft landing or a recession in 2023. Powell has been asked about the likelihood of a soft landing at every one of his past five news conferences. In May, he said there was a “good chance” it would happen. Last month, he admitted that likelihood had “narrowed.”

The phrase is meant to describe a scenario in which the country avoids a recession in 2023 despite high inflation, the war in Ukraine and a rapid surge in interest rates. Given that the Fed has triggered a recession in eight of the last nine rate-hike cycles, it would be remarkable to avoid one this time. But the term “soft” makes it sound as if no one is going to get hurt.

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The reality is that a substantial number of Americans will experience pain even if the country doesn’t technically fall into a recession. A more appropriate term is probably a “forced landing” or an “emergency landing.” Or, we should ditch the landing gear entirely and call this best-case scenario something more like a “stall session.”

“I would not call it a ‘soft landing.’ It’s a complete mislabeling of the reality of what will happen here,” said Mark Zandi, chief economist at Moody’s Analytics. “If the economy is simply flat for jobs and GDP, which is the goal, that means half the economy is in recession.”

Even if growth overall doesn’t turn negative, some industries will experience downturns and, probably, a bump in layoffs. It’s already starting to happen.

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The housing market is in a recession. There’s been an enormous drop in sales — transactions are down more than 20 percent as mortgage rates have shot up from near 3 percent at the start of the year to 7 percent in October. Americans say it’s the worst time to buy a home in decades, many millennials fear they won’t be able to become homeowners, and home builders are dour.

Robert Dietz, chief economist for the National Association of Home Builders, said recently, “Our take is that the economy is in recession,” because housing downturns so often foreshadow what’s coming for other industries.

Housing isn’t the only sector flashing red. Manufacturing is “in a nascent contraction,” said Lakshman Achuthan, co-founder of the Economic Cycle Research Institute. The widely watched ISM Manufacturing Index out last week dropped below 50, signaling a contraction for the first time since the spring of 2020. New orders, hiring and prices are all slipping fast, the index shows.

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How many more industries will slump and for how long is hard to say. Tech is on pace for the most firings this year since 2002, according to the job-transition firm Challenger, Gray & Christmas, and the advertising pullback is rippling through media companies and triggering layoffs. Consumer spending remains one bright spot, though there is concern about how long that will last now that Americans’ savings rate is at a 17-year low.

Fed leaders have been as clear as they can in warning that they are not done hiking rates and expect more fallout. “We have got to get inflation behind us,” Powell said in September. “I wish there were a painless way to do that. There isn’t.” Even the normally optimistic New York Fed President John Williams predicted unemployment could rise to 5 percent, up from the current 3.7 percent. That means about 2 million people would lose their jobs.

All of this is starting to have parallels to the run-up to the 2016 election. What many experts missed then was a “mini-recession” in energy, manufacturing and agriculture in 2015-2016. The overall economy slowed, but even though it did not tank, the mood in some critical parts of the country was dark because people were experiencing a slump or they had friends and family who were.There was a disconnect between what people saw in headlines and what they experienced locally.

There’s a high risk that something similar will happen in 2023, except this time the housing market woes are visible in nearly every community. This will be especially true if home prices start to fall a lot, though for now the historic lack of homes for sale is keeping prices from dropping much in most markets.

It’s becoming increasingly clear that the best question to ask isn’t whether there will be a recession next year. It’s who’s going to get hurt?

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