The Economic Rollercoaster

It seems like we’re on an economic rollercoaster right now and the big question is when we get off. When does inflation cool? We dig into the latest data to help determine if a soft landing really is where we’re heading.

After renewed expectations of a recession in recent weeks, as summarized in our earlier blog, it now seems like the prospects of a “soft landing” have increased.

Shocking jobs data: Last Friday, BLS surprised economists when it announced that the economy added 336,000 jobs in September, way above the 170,000 increase that was expected and above the monthly average of 267,000 over the past year.

• Notably, the leisure & hospitality industry accounted for 29% of this jobs growth, its highest share since November 2022.

Additionally, job openings data, released last week for August, showed an unexpected reverse from past months, with an increase in openings.

Last week’s jobs data highlighted the resilience of the economy. But what about the Fed’s expectation—or even hope—of a cooling economy so that it can put an end to rate hikes? Wouldn’t this jobs data lead to inflation?

Cautioned optimism: Two key factors—falling gas prices in recent weeks and a notable moderation in wage growth—were immediately highlighted by many analysts as reasons to expect inflation to moderate or even slow down despite strong jobs growth.

September’s Consumer Price Index (CPI), released yesterday, however, failed to meet expectations. Prices grew at the same year-over-year rate (+3.7%) as those in August, and slightly faster than what was expected.

What’s more: Travel prices rose again, as reflected in our Travel Price Index.

But it’s not all bad news: The September report reflects an increase in gas prices of 3%. While true for September, we already know that gas prices have been falling in October and analysts are expecting them to fall further. This will likely lead to a decline in October inflation.

• Furthermore, the fact that inflation did not increase in September despite the strong jobs report can be seen as a positive sign.

A caveat: Right now, the brutal attack against Israel and the resulting war is not expected to affect gas prices, but that would change if some other regional players were to enter the conflict.

The big question: Have we dodged a recession? Yesterday’s data, while not exactly what was hoped for, still helps relieve fears that Friday’s “hot” jobs report would have increased inflation, forcing the Fed to act.

Let’s break this down: Coupled with a strong economy and an expectation of lower prices in October due to declining gas prices, I think there is reason for increased optimism.

• The Fed's own economists are, in fact, predicting an ideal “Goldilocks scenario”: No recession, falling inflation and flat unemployment.
• If achieved—and there are many economists who still believe a recession is inevitable—a “soft landing” in the face of increased rates, is a big deal, as it has only been achieved once in 60 years.

Consumers are still pessimistic: While the latest economic data offers some promising signals to many economists, consumers are worried. The Consumer Confidence Index has declined in recent months while the Consumer Sentiment Index, released today for October, plunged to its lowest level since May.

Why this all matters: While challenges persist—including still-high inflation, dwindling pandemic-era savings and a resumption of student loan payments, which have all been leading to negative consumer sentiment —and the travel industry’s growth has moderated, travel will benefit greatly if the economy ultimately manages to achieve its soft landing.