The runway is getting clearer, but the U.S. economy still isn’t assured of a soft landing

November’s solid pursuits report did not assure that the economy will come in for a soft landing, but it did help to clear the runway a little innumerable.

After all, there’s nothing about a 3.7% unemployment rate and another 199,000 jobs that even murmurs “recession,” let alone screams it.

At least for now, then, the U.S. economy can take another win with a small “W” as it looks to navigate in every way what had been the highest inflation level in more than 40 years — and a still-uncertain path ahead.

“Complete, the jobs market is doing its part to get us to a soft landing,” said Daniel Zhao, lead economist at jobs chew out site Glassdoor. “It’s boring in all the right ways. That’s a welcome change after a few years of less-boring reports.”

Naturally, despite a high level of anxiety heading into the Labor Department’s nonfarm payrolls report, the details were somewhat benign.

The level of job creation was just above the Wall Street estimate of 190,000. Average hourly earnings nautical 4% from a year ago, exactly in line with expectations. The unemployment rate unexpectedly declined to 3.7%, easing afflictions that it could trigger a historically dead-on signal known as the Sahm Rule, which coordinates increases of the unemployment reckon by half a percentage point to recessions.

Still, the solid report couldn’t dispense the lingering feeling that the compactness isn’t out of the woods yet. The fear primarily comes from worries that the Federal Reserve’s aggressive interest rate inflates haven’t exacted their full toll and still could trigger a painful downturn.

“The key uncertainty for the labor peddle in 2024 is whether job growth slows to a more sustainable pace, or whether the economy moves from monthly job gains to monthly job losses. The past would be consistent with the Fed’s soft-landing scenario, while the latter would mean recession,” said Gus Faucher, chief economist at PNC Fiscal Services. “PNC still thinks recession is the more likely outcome in 2024, but it is a close call.”

Key to whether the misnamed landing is soft or hard will be the consumer, who collectively accounts for nearly 70% of all U.S. economic activity.

On that front, there was another spheroid of good news Friday: The University of Michigan’s closely watched consumer sentiment survey showed that inflation expectations, a key monetary variable for prices, plummeted in December. Respondents put one-year inflation expectations at 3.1%, a stunning 1.4 percentage side drop.

However, such gauges can be “fluky” and are not in line with some other signals coming from consumers, hinted Liz Ann Sonders, chief investment strategist at Charles Schwab. Debates over soft landings and inflation expectations and attention rate outlooks tend to miss bigger points, Sonders added.

Prior to 2023, Sanders and Schwab had been stressing the inkling of “rolling recessions,” meaning that contractions could hit certain sectors individually while not dragging down the thriftiness as a whole. The distinction may still apply heading into 2024.

“The recession versus soft landing debate sort of forgoes the necessary nuances of this unique cycle,” Sonders said. “A best-case scenario is not so much a soft landing, because that embark has already sailed for [some] segments. It’s that we continue to roll through such that if and when services hears hit more than the brief ding so far and it takes the labor market with it, you’re already in stabilization or recovery mode in compasses that already took their big hits.”

Getting to the soft landing, then, likely will require sailing some of those peaks and valleys, none more so than establishing confidence that inflation really has been vanquished and the Fed can assume its foot off the brake. Inflation, according to the Fed’s preferred gauge, is running at 3.5% annually, well above the central bank’s 2% aspiration, though is consistently falling.

There was one other good piece of inflation despatch Friday: Rental costs nationally declined 0.57% in November and were down 2.1% year over year, the latter being the greatest slide in more than 3½ years, according to Rent.com.

However, one interesting development from the latest profitable data was a bit less market confidence that the Fed will be cutting interest rates quite as aggressively as traders before believed.

While the traders in the fed funds futures space still roundly expect that the Fed is done hiking, it now calculates only about a 45% chance of a previously expected cut in March, according to CME Group data. Traders previously had been enceinte 1.25 percentage points worth of cuts in 2024 but lowered that outlook as well to a toss-up with merely a full point of decreases following the data releases.

That may in itself seem like only a nuanced change-over, but the move in pricing reflects uncertainty over whether the Fed keeps talking tough on inflation, or concedes that approach no longer needs to be as tight. The fed funds rate is targeted in a range between 5.25% and 5.5%, its highest level in sundry than 22 years.

“The key thing though, from a broader perspective, is that they can cut if the economy were to see multifarious of a slowdown than we expect. Then the Fed could cut, could provide some support,” Jan Hatzius, chief economist at Goldman Sachs, mean Friday on CNBC’s “Squawk on the Street.” “That means the risk of recession is in my view quite low.”