The American economy just delivered something for the history books: a “soft landing.”
Experts say this rare event has happened only once before – and it’s promising news for both the job market and stock performance, and provides a boost to 401(k)s.
A soft landing occurs when runaway inflation is brought under control without pushing the economy into recession.
Gross domestic product (GDP) — a measure of all goods and services produced in the U.S. — rose 2.8 percent annually from July through September, the Commerce Department said Wednesday. This follows similarly strong gains earlier this year.
Inflation has nearly reached the Federal Reserve’s 2 percent target, now at 2.4 percent for the past month.
Meanwhile, as many as 254,000 jobs were created in September and consumer confidence saw its biggest increase since the start of 2021, signaling renewed optimism.
While job growth fell in October, economists were reassured that the shock figure was largely due to the ongoing Boeing strike and the devastating impact of Hurricanes Helene and Milton.
Economists are celebrating. “I think we should declare a soft landing now,” former St. Louis Fed President James Bullard said in an interview with CNN.
GDP rose by 2.8 percent year-on-year in the July to September 2024 quarter
According to some economists, this feat has only happened once, in the 1990s.
This week’s GDP report shows that businesses continue to invest and household spending remains strong.
This is critical because consumer spending accounts for about two-thirds of U.S. economic output.
American shoppers are back in the game. Spending on major purchases drove growth in the third quarter, showing how essential consumer confidence is to the pulse of the economy.
With business investment holding steady and federal and state spending adding fuel, the country is defying the odds that it will enter a recession.
Share prices have risen steadily to record highs in recent months. Much of that is due to signs this summer that the US is on track for a soft landing, something Wednesday’s numbers all but confirm.
A strong stock market is good for 401(K)s and other retirement accounts – which are mainly invested in indices such as the Dow, the Nasdaq and the S&P and through shares of individual US companies such as Apple.
Experts have long predicted that high borrowing costs resulting from successive rate hikes would push the US into recession, but instead the economy has remained consistently strong.
Fed officials cut rates by 0.5 percentage points in September and are expected to do so once or twice more this year. Officials had indicated they would cut rates as inflation moved closer to their target.
Annual inflation stood at 3 percent in June – above the Fed’s target of 2 percent
Fed officials have made clear they would consider cutting rates as inflation moves closer to their target (Photo: Federal Reserve Chairman Jerome Powell)
Interest rate cuts by the Fed will eventually lower consumers’ borrowing costs for services such as mortgages, auto loans and credit cards.
While inflation has fallen significantly from a 40-year high of 9.1 percent in June 2022, persistent inflation has left prices for some everyday goods well above pre-pandemic levels.
According to Labor Department data, food prices have risen 20 percent in the past five years.
The cost of some daily necessities has risen much more – eggs and milk now cost double what they did in 2019.