Over the past few years, the prospect of a recession has been extensively debated by economists and financial experts. The discourse has ranged from scenarios of a hard landing to a soft landing—yet, there is now a suggestion of a “no-landing” scenario. This possibility raises important questions about its implications for the economy and the concerns it may pose for real estate investors.

The Evolving Economic Landscape

For much of 2023, predictions were marked by pessimism until the latter half of the year, when it became evident that the U.S. economy demonstrated greater resilience in the post-pandemic context than initially anticipated. From that point forward, and as recently as last week, the prevailing narrative suggested that the economy would likely experience a “soft landing” sometime in 2024.

However, as 2024 approaches its conclusion, the situation remains ambiguous. While it appears that a significant economic disaster has been averted and a severe recession is not imminent, the economy continues to grow, albeit at a slow pace, without widespread unemployment. Nonetheless, inflation, though significantly reduced from the 3.2% level of a year prior, remains above the Federal Reserve’s target of under 2%, standing at 2.4% as of September 2024.

Experts have begun to explore the concept of a “no-landing” economy, wherein the economy continues to expand despite high inflation, even in the face of contractionary measures. Beth Ann Bovino, the chief economist at U.S. Bank, indicated to CNBC in early October that the combination of a robust labor market and a deceleration in price increases, alongside declining interest rates, could lead to either a soft landing or a no-landing scenario. A no-landing outcome might yield “even stronger economic data for 2025 than currently expected.”

The Potential Challenges of a No-Landing Scenario

What are the implications of a no-landing scenario, especially if it indicates economic stability with persistent inflation? Some media outlets have lauded this concept as potentially advantageous for traditional investors, suggesting that stocks could thrive under such conditions.

In the short term, a no-landing scenario might not result in drastic effects; however, it could create complications for homebuyers and investors. Elevated interest rates could persist, and any further reductions by the Federal Reserve may be implemented more gradually than desired by those in the housing market.

The concern lies deeper than mere inconvenience. If the no-landing conditions extend into 2025, they may signify underlying issues and lead to unexpected economic outcomes. A “no-landing economy,” by its definition, suggests a state of uncertainty, hovering between various potential futures. It does not indicate a sustainable long-term condition but rather serves as a precursor to other economic developments.

Despite the positive portrayal of the U.S. economy in theoretical terms, actual conditions may not reflect the same optimism. While the economy appears stable and recession-free, it could be precariously close to a downturn reminiscent of the 1970s.

From No-Landing to Stagflation?

Analyzing labor market data reveals that while the unemployment rate stood at 4.1% in September—far better than the alarming figures observed during the pandemic—further investigation uncovers a contracting labor market. Companies are not significantly laying off employees, but they are also refraining from new hires.

This trend is supported by recent data indicating a decline in new unemployment applications, accompanied by a rise in continuous jobless claims, reaching levels not seen since mid-November 2021. Such figures suggest that individuals may struggle to secure new employment if they leave their current positions.

When the Federal Reserve convenes next week, it is likely to downplay these labor statistics, attributing them to factors such as the hurricanes that impacted September’s employment data. This implies that another substantial rate cut may not be forthcoming, especially since inflation remains above targeted levels.

Should the Federal Reserve misjudge the trajectory of the labor market, the economy could potentially face a rare and undesirable phenomenon known as “stagflation.” In this scenario, inflation remains high while unemployment continues to rise, resulting in hardships for both consumers and investors.

Essentially, this situation embodies the most challenging of circumstances: diminished purchasing power coupled with escalating prices, with no foreseeable resolution. In such a scenario, traditional economic measures, like interest rate cuts, may become ineffective.

Is this scenario too speculative? Jamie Dimon, CEO of J.P. Morgan, recently voiced concerns about the potential for stagflation at the American Bankers Association Annual Convention. He highlighted macroeconomic influences that will shape the economy, including the highest peacetime deficit in U.S. history, the global remilitarization, and the transition to a green economy. All these factors, as he identifies them, could contribute to sustained inflationary pressures for years to come.

In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“