No recession coming—we’re pulling off a soft landing

US economic data points to a soft landing as the labor market and inflation gradually cool.

Until recently those two forces were holding back a soft-landing narrative.

The US seems on track for lower price growth without a recession.

You might have heard the US is not in a recession, but the good news about the economy doesn't stop there. A soft landing is on the horizon — or already here, depending on who you ask — and recent data reinforces that.

Two of the most glaring signals of an economy still running hot — inflation and a strong labor market — have in the past week showed signs of cooling. That's fueled hopes of interest-rate cuts and a subsequent soft landing, generally defined as when interest rates reduce inflation without causing runaway unemployment or hurting economic growth.

The data marks the firmest sign to date that the US economy — shepherded by the Federal Reserve's interest-rate decisions — has threaded the needle and avoided a sharp downturn.

"The economic rebalancing that we thought was necessary a couple years ago largely looks like it's been achieved," Joseph Briggs, an economist at Goldman Sachs, told Business Insider. "Provided that we stay on this current course, I expect that we will be increasingly transitioning to a more normal economic environment."

Briggs also said that achieving a soft landing would help avoid "some of the economic hardships that often come if you were to see the economy enter a more significant slowdown."

A slowly cooling economy heading back to normal

The economy has been confusing because the labor market has stayed pretty hot and inflation has been stubborn despite the Fed's trying to slow down borrowing and spending.

The Fed reacted to sky-high inflation a few years ago by hiking interest rates and holding them at that elevated level. The next Federal Open Market Committee meeting is next week, and the CME FedWatch Tool showed that as of Wednesday morning traders overwhelmingly thought rates were likely to stay at their target.

Data indicates the US labor market isn't too hot, meaning the Fed is unlikely to go back to raising rates and keeping the door open for cuts later this year. There were 175,000 jobs added in April. March's job growth was almost twice as large, with a gain of 315,000. Those figures could be revised in the report from the Bureau of Labor Statistics on Friday.

Job-openings data out on Tuesday from the Bureau of Labor Statistics showed that they continued their downward trend in April, suggesting businesses are slowing their hiring plans. Plus, the number of job openings per unemployed person has been moving downward in 2024.

"The substantial decline in job openings in April, to the lowest level since February 2021, paints a clear picture of a job market that has essentially returned to its pre-pandemic balance and is on the cusp of a soft landing," Nick Bunker, the economic research director for North America at the Indeed Hiring Lab, said recently in written commentary.

"Over the past two years, the US labor market has cooled off in a relatively painless way: Fewer people are switching jobs while layoffs remain low," Bunker told Business Insider. "The result is that unemployment has been below 4% for over two years. But if the reduction in inflation stalls, then any further cooling off would mean higher unemployment."