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Hard or soft?

The market consensus has just abandoned the #recession camp for 2023. After discounting a hard landing narrative for the economy through the first half of the year, most economists have pushed the recession one to 2024 or simply changed they’re predictions to a soft landing. One of the main reasons for that has been the strength of the labour market. Historically low unemployment after the pandemic and 2 job openings per unemployed person in the US have contributed to the forecast change. But as it usually happens, just when the market changes its view, the data starts showing signs of weakening. The chart below shows job openings per unemployed vs fed funds. And despite the fact that labour participation has fallen, job openings have gone from 2 to 1.5 which it’s still strong, but it has fallen rapidly. It will be difficult for the fed to justify “higher for longer” when the banking sector is weak and unemployment is showing cracks.

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