[August 2023]
1 minute speech
Title : Citigroup Economist Warns Against Soft Landing Optimism
Link : https://youtu.be/nA4UJYC2Cvo
1. Summary
Veronica Clark discusses a new soft landing issue, focusing on labor market data for potential soft landing indicators. While inflation could slow based on CPI data, sustained recovery to 2% hinges on labor market loosening. Key is wage growth and employment data, with the ECI and Atlanta Fed's wage tracker being monitored. Though some believe easy year-over-year comparisons cause quick inflation reduction, aspects like energy and used car prices may rebound, potentially reaccelerating inflation. Housing activity's rebound might contribute to an upside later this year or early next.
2. Script
Veronica Clark, let's cut to the chase. There's a new soft landing issue out there. What do they get wrong?
What is the singular distinction which allows you not to join the club?
Yeah, I think it really comes down to the labor market and the data that we might see for the next really run the rest of this year could look like a soft landing. You know, we will probably get still some strong activity. Data inflation, especially by CPI, could look like it's slowing. But unless we get more loosening in the labor market, it's hard for us to see that inflation durably sustainably comes back to 2%.
What is the employment data that matters, and do we have to wait for the first Friday or whatever of August to get a recalibration here of which way this landing goes?
Yeah, it ultimately comes down to what wage growth does, really. But all the employment data is going to matter, of course. And when we have a very low unemployment rate and we're still adding, you know, over 100,000, well over 100,000 jobs, that's still putting downward pressure on the unemployment rate. That should mean that there's still that upward pressure on wages. And we'll be watching, you know, the ECI that we're going to get next week. The Atlanta Fed has a wage tracker that is also still showing wage growth that's too strong to be consistent with 2% inflation.
Some people are saying that the reason why inflation is coming down so quickly is just because the year over year comparison numbers are so easy to beat.
Can you give us a sense of which aspects of the inflation rate could potentially regroup and reaccelerate in the next six months?
Yeah, Yeah. I mean, that's definitely part of it, especially when we're looking at headline inflation and energy prices that have come down a lot. We will still see, you know, falling used car prices probably in the next couple of months. And of course, that's been a really strong component of inflation and that will look a lot better. But, you know, components that we're focused on are still those, you know, qua non shelter services shelter, which should continue to slow also. But even something like that is where we could see some reacceleration. We've already seen this rebound in housing activity. So we might see some of that upside later, later in this year or maybe early next year.