New Data Strengthens Expectations for a Soft Landing in the US Economy

A range of economic data expected this week is likely to enhance confidence in the prospect of a “soft landing” for the US economy, according to analysts at Bank of America.

The focus will be on the upcoming US nonfarm payrolls report, which could provide insights into the labor market’s health.

In a recent note, the analysts expressed that the data might “add fuel” to the belief that the Federal Reserve is on track to control inflation without triggering significant downturns in employment or the broader economy—an outcome referred to as a “soft landing.”

Economists predict that the US economy will add 144,000 jobs in September, an increase from the previous month’s 142,000. The unemployment rate is anticipated to remain steady at 4.2%.

In August, payrolls were reported at a downwardly revised figure of 89,000, falling short of forecasts of 164,000, while the unemployment rate decreased from 4.3%.

Overall, these figures reflect a decline in labor demand—a trend identified by several Federal Reserve officials as pivotal in their decision to enact a substantial 50-basis point interest rate cut earlier this month. Previously, the Fed had raised rates to their highest level in over two decades to address inflationary pressures.

In anticipation of Friday’s nonfarm payrolls report, markets will review job openings and private sector hiring data.

Additionally, investors will be analyzing the September reports from the Institute for Supply Management, focusing on the manufacturing and services purchasing managers’ indices for further insights into the US economy’s performance.

The Bank of America analysts forecast that the ISM surveys will indicate weaknesses in the manufacturing sector while showing growth in the services sector.

The ISM manufacturing PMI, scheduled for release on October 1, is expected to arrive at 47.6, up from 47.2 in August, yet still below the 50-point threshold that separates contraction from expansion. Meanwhile, the non-manufacturing PMI on October 3 is projected to rise to 51.6, slightly above the previous month’s 51.5.

In summary, the BofA analysts believe that the data will support a positive view towards a soft landing, noting that “economic momentum is cooling, not crumbling.”