US Economy: Is a Soft Landing on the Horizon?

Current Economic Indicators Overview

Macroeconomic factors such as inflation, interest rates, and geopolitical tensions are creating headwinds for the US economy. Despite these challenges, forward-looking indicators and market sensitivity analyses suggest a cautious yet optimistic outlook, with diversified growth drivers providing some stability.

"Overview Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify." --- (AMZN, sec filing, 2024/Q1)

"This will continue to evolve and be highly data-dependent. I am also mindful that US equity markets are hovering near-record levels at a time when we see -- when we continue to see headwinds, including concerns around inflation, the commercial real estate market, and escalating geopolitical tensions around the world. This combination could slow growth. But that said, the US economy has" --- (GS, earning call, 2024/Q1)

"So you see those 1 5 year numbers, those come from the past years. And so when you look at 2023 and you look even at the Q1 of 2024, you should think of those as forward looking indicators as to what you should expect from a financial perspective, which is why I want to close on this last page here.The power of the diversification of this business, plus the traction of all those growth drivers makes me want to have high confidence in reiterating to you our through the cycle targets." --- (JPM, event transcript, 2024/05/20)

"Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending, including the impact of recessionary fears, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the Internet, online commerce, cloud services and new and emerging technologies, and the various factors detailed in our filings with the SEC." --- (AMZN, earning call, 2024/Q1)

"Sensitivity analysis is used to quantify the impact of a market move in a single risk factor across all positions (e.g., equity prices or credit spreads) using a variety of defined market shocks, ranging from those that could be expected over a one-day time horizon up to those that could take many months to occur." --- (GS, sec filing, 2024/Q1)

Impact of Federal Reserve Interest Rate Policies

Federal Reserve interest rate policies are influencing financial markets and institutions significantly. Goldman Sachs and Citigroup anticipate gold price increases and ETF inflows with potential rate cuts. Wells Fargo reports declining net interest income due to higher rates, while JPMorgan Chase notes deposit impacts from Fed actions. Bank of America foresees economic shifts with expected rate cuts.

"Gold’s price has risen in recent days after the U.S. Federal Reserve hinted that interest rate cuts could be on the horizon and ruled out any further rate increases." --- (GS, press release, 2024/05/06)

"Turning to Slide 4. Net interest income declined $1.1 billion or 8% from a year ago due to the impact of higher interest rates on funding costs, including the impact of customers migrating to higher yielding deposit products as well as lower loan balances, partially offset by higher yields on earning assets." --- (WFC, earning call, 2024/Q1)

"I think it was Slide 22 you pointed to. Can you share with us as you go forward and assuming the Federal Reserve does cut interest rates, I know you put, I think, free Fed fund rate cuts in your Slide 10." --- (BAC, earning call, 2024/Q2)

"Citigroup also expects inflows into gold exchange-traded funds (ETFs) to improve in the second half of this year as the U.S. Federal Reserve begins to lower interest rates." --- (C, press release, 2024/07/10)

"Therefore, the actual amount of deposits held by the Firm, at any particular time, could be impacted by actions the Federal Reserve may take as part of monetary policy, including through the use of the Reverse Repurchase Facility." --- (JPM, sec filing, 2024/Q1)

Quantitative Easing and Market Liquidity

Reduced expectations for Fed easing have not hindered equity market growth, with investor sentiment remaining strong (SCHW). Efforts to increase liquidity in US equity markets continue (BLK), despite potential negative impacts from global credit conditions (MA). Fed actions will influence market conditions and liquidity preferences (TROW), with companies actively managing liquidity in response to economic policies (V).

"ago. And even as the market reduced expectations for the pace and extent of Fed easing due to the stubborn inflation readings, the equity markets continued to move higher during the quarter. Investor sentiment continued its recovery with the bull bear spread maintaining its recent strong position." --- (SCHW, event transcript, 2024/04/15)

"The exchange aims to facilitate greater access and increase liquidity in US equity capital markets for investors." --- (BLK, earning call, 2024/Q2)

"Our liquidity and access to capital could be negatively impacted by global credit market conditions." --- (MA, sec filing, 2024/Q2)

"If the Fed only makes a few cuts or does not cut at all, we believe the market conditions will be primed for stocks that should benefit from higher rates and inflation to perform better. Tim Murray, Chief Capital Markets Strategist, Multi-Asset Division As fears over a recession have receded, it's likely the current preference for liquidity will ease." --- (TROW, press release, 2024/06/20)

"We will continue to assess our liquidity position and potential sources of supplemental liquidity in view of our operating performance, current economic and capital market conditions and other relevant circumstances." --- (V, sec filing, 2024/Q3)

Corporate Earnings and Business Sentiment

Corporate earnings and business sentiment remain robust, with Microsoft and Apple reporting strong revenue drivers and substantial share repurchase plans, respectively. Tesla highlights positive cash flow and efficient capital management, while Amazon underscores its significant market presence. Overall, these indicators suggest a positive outlook for corporate earnings and business sentiment.

"Second quarter revenue is driven by corporate year-end spending trends in our major markets and holiday season spending by consumers, and fourth quarter revenue is driven by the volume of multi-year on-premises contracts executed during the period." --- (MSFT, sec filing, 2024/Q3)

"Given the continued confidence we have in our business now and into the future, our Board has authorized today an additional $110 billion for share repurchases, as we maintain our goal of getting to net cash-neutral over time." --- (AAPL, earning call, 2024/Q2)

"Our business has generally been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also generally facilitating positive cash generation." --- (TSLA, sec filing, 2024/Q2)

"And I think if you look at our existing large businesses and stores and AWS as examples, they still require very stores business, which is roughly a $500,000,000,000 annual our stores business, which is roughly a $500,000,000,000 annual revenue business, we're still only about 1% of the worldwide market segment share physical stores." --- (AMZN, AGM, 2024/05/22)

"Earnings per share was $2.95 and increased 10% and 11% in constant currency. In our largest quarter of the year, we again delivered double-digit top and bottom line growth with continued share gains across many of our businesses and record commitments to our Microsoft Cloud platform." --- (MSFT, earning call, 2024/Q4)

Consumer Spending Trends and Economic Impact

Consumer spending is shifting from goods to services, influenced by high interest rates and inflation, leading to soft trends in discretionary categories like home improvement. Despite these challenges, the U.S. consumer market remains attractive and fundamentally strong compared to the broader economy.

"The decrease in comparable customer transactions reflects the impact of macroeconomic factors, including the continued shift in consumer consumption trends away from goods and towards services and the impact of a high interest rate environment, pressuring home improvement demand." --- (HD, sec filing, 2024/Q1)

"Other Information ." We expect continued uncertainty in our business and the global economy due to inflationary trends, a challenging macro environment, geopolitical conditions, supply chain disruptions, volatility in employment trends and consumer confidence." --- (WMT, sec filing, 2025/Q1)

"This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories, most notably in Home and Hardlines." --- (TGT, earning call, 2025/Q1)

"Now I'd like to provide a quick update on our view of the macro. Uncertainty around interest rate cuts, stubborn inflationary pressures and a consumer still showing a preference towards spending on discretionary services and experiences continue to weigh on the DIY home improvement demand." --- (LOW, earning call, 2025/Q1)

"I do think that those underlying supports mean that this is one of the most attractive consumer markets in the U. S. And definitely on a comparative basis versus the general economy, I think it's advantaged from a fundamentals perspective, yes." --- (HD, conference, 2024/04/04)

Labor Market Conditions and Stability

Labor market conditions remain challenging, with tight job markets and inflationary pressures affecting small and mid-size businesses (PAYX). Companies like ADP and KFY anticipate below-normal pay growth and potential revenue pressures. However, KFY also suggests that the US labor market may not change materially, indicating some stability amidst these challenges.

"However, if the national or global economy, credit market conditions and/or labor markets were to deteriorate in the future, including as a result of ongoing macroeconomic uncertainty due to inflation and a potential recession, such changes have and could put further negative pressure on demand for our services and affect our operating cash flows." --- (KFY, sec filing, 2024/Q4)

"us well for future profitable growth as well. The macroeconomic and labor market remains challenging for small mid-size businesses, a tight job market for qualified workers reduce access to affordable growth capital and inflationary pressures continue to be headwinds for small businesses." --- (PAYX, earning call, 2024/Q3)

"Maybe such as higher labor market churn and whether there could be any potential flow through to Robert Half or similar companies that could potentially fill gaps with contract talent. Thank you." --- (RHI, earning call, 2024/Q1)

"First, give them the fullness of the labor market, we are planning for pays per control growth to once again be below normal levels next year and to decelerate modestly from this year's growth level in both ES and our PEO segments with the resulting revenue pressure more apparent in the PEO segment given its more direct revenue sensitivity to work-site employees." --- (ADP, earning call, 2024/Q3)

"I think the labor market in the United States is not going to change materially." --- (KFY, earning call, 2024/Q4)

Geopolitical Risks and Economic Implications

Geopolitical risks, including conflicts and strained intercountry relations, create significant uncertainties impacting businesses across sectors. Companies like RTX, LMT, and BA highlight the complex global security environment and evolving trade conditions, while NOC notes that defense spending driven by geopolitical dynamics ensures continuous market growth.

"Other Matters Global economic and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, geopolitical conflicts and strained intercountry relations, U.S. and non U.S. tax law changes, foreign currency exchange rates, energy costs and supply, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses." --- (RTX, sec filing, 2024/Q1)

"See also the discussion of U.S. Government funding risks within “Item 1A, Risk Factors” included in our 2023 Form 10-K. Geopolitical and Economic Environment We operate in a complex and evolving global security environment and our business is affected by geopolitical and security issues." --- (LMT, sec filing, 2024/Q2)

"Additional Considerations Global Trade We continually monitor the global trade environment in response to geopolitical economic developments, as well as changes in tariffs, trade agreements, or sanctions that may impact the Company." --- (BA, sec filing, 2024/Q2)

"The ongoing geopolitical dynamics and the resulting defence spending ensure a continuous demand for advanced defence electronics, driving market growth." --- (NOC, press release, 2024/06/13)

"Other Matters Global economic and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, geopolitical conflicts and strained intercountry relations, U.S. and non-U.S. tax law changes, foreign currency exchange rates, energy costs and supply, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses." --- (RTX, sec filing, 2024/Q2)

Future Outlook: Likelihood of a Soft Landing

Major financial institutions like JPMorgan Chase and Goldman Sachs indicate a high probability of a soft landing for the US economy, driven by declining inflation and stable interest rates. However, they caution that risks remain, and inflation continues to be a critical factor in economic decision-making.

"Who would have thought that after the pandemic, 2 world geopolitical tensions, massive fiscal and monetary expansions everywhere in the world, We are going to be today in a situation discussing the high probability of soft landing.And I think that this is a central scenario, it's likely as inflation continues to come down, but there are tails and there are risks that may kind of derail us for that very strong scenario." --- (JPM, Investor Day, 2024/05/20)

"Markets continue to forecast a soft landing as the expected economic growth trajectory improves and equity markets remain near all-time highs.I am particularly encouraged by the ongoing advancements in artificial intelligence. Recently, our Board of Directors spent a week" --- (GS, earning call, 2024/Q2)

"If we have a soft landing and rates stay where they are, come down a little bit, which is what the world expects, everyone is fine." --- (JPM, conference, 2024/05/29)

"So our clients, I would say, are operating with a soft landing base case, but everybody is focused on inflation because it impacts the way you make decisions, whether you're an investor or you're running a corporation or" --- (GS, conference, 2024/05/30)

"Now you have to scenario plan, okay? If we have a soft landing and rates stay where they are, come down a little bit, which is what the world expects," --- (JPM, conference, 2024/05/29)