Soft Landing? Recession is Imminent!

There is a new narrative brewing on the street: Soft landing. But all the data is pointing to a recession is coming!

August non-farm payrolll was released on Friday, Sept 1, actual of 187k v.s. est. of 170k. On surface, it seems like a report that will keep FED on its path to raise another 25 bps in November. But if we look closely, June and July combined were revised DOWN by 110k in August. Moreover, June payroll is now 104k v.s. 209k reported two months ago. Just think about it for a second, should BLS reported the right number, how would the market react? Panic? Bond yields tanking? Both?

In fact, payroll numbers of every single month in 2023 have been revised down. It is a typical sign that we see ahead of recession. But the long-end of the yield curve sell of on Friday. Who knows, maybe the market knows something we don't, but I just don't buy the wall street's narative of soft landing. I believe they are use it as their exit liquidity.

Other than the payroll number, Unemployedment rate shot up to 3.8% in August from 3.5% in July mainly due to the increase in participation rate. More specifically, over 500k people joined the work force in the month of August. The answer to that is quite simple, regular consumers' bank account is running low and they need to start working. Just 4,5 month ago, we suspected that participation rate will structurely stay low due to elderly left the workforce for good. But we were wrong! As stimulus checks run out and students need to start paying their loans again, we will witness the fight for job and we all know what happened when unemployment rate starts shooting up, it will continue its path regaardless of recent monetory policies. If FED continue to focus on the most lagging macro variable, unemployment rate, they will lead the economy to only one place, recession.

Lastly, FED is hesitant to admit the inflation is on a downward trend and the trend will continue for the little while. 3-month annulized CORE is only 2.6%, very close to the 2% target if +-0.5% range is added. And the FED know rents inflation will come down because there is a lag. FED needs to acknowledge that infltion is cooling down and job market is slowing much faster than they thought, otherwise, Soft landing is more like a LaLa land and recession is imminent.