Economic Outlook October 2023

Forecasts for a “soft landing” (where the economy slows while avoiding a recession) may be a directional indicator, rather than a result.

Most people would like to see an economic soft landing, because it is least disruptive. Predictions for the future are frequently based in thinking that tomorrow will be a linear extension of recent events, giving rise to the soft-landing concept. However, history suggests that linearity often fails to materialize. Instead, something arises to disrupt the straight-line sequence of events, changing the economic trajectory and ultimately the outcome. What could that something be? We don’t yet know. It may even be a combination of smaller events that, on their own, would not change the economic trajectory – but that in concert with other events have a cumulative effect on future outcomes.

Here are examples of smaller events that, combined with others, could impact linear tendencies:

1. More frequent labor strikes (recently, we’ve seen strikes among airlines, writers, delivery drivers and autoworkers)
2. Long and variable economic lags to Federal Reserve interest rate increases
3. Prospects of even more Fed rate hikes
4. Declines in commercial property values
5. Resumption of student loan payments
6. Higher costs for business and personal debt
7. Reduced corporate stock repurchases 
8. Threats of government shutdowns
9. Swelling federal debt and rapidly rising government interest expense
10. Rising unemployment
11. Lingering elevated inflation and wages that don’t keep pace

In all, I have a list of 21 conditions that fall into this category, plus a notable event that could change things on its own, and very suddenly: the possibility of China invading Taiwan.

Just so we don’t throw cold water on the economy’s soft-landing potential, I also have a constructive list of events that could deliver the ideal outcome. However, that is a shorter list at the present time.

None of these conditions are a prediction of things to come, but they are definitely considerations as we construct portfolios designed to meet our clients’ long-term goals. It should be noted that these potential events, as real as they could be, are not a reason to time the market. The history of accurately selling and buying the market at the right time and in the right direction is nothing short of dismal. Instead, we look to build portfolios that are neither too aggressive nor too timid, but fall in the “baby bear porridge” scope of being just right.