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Investing.com -- The better-than-expected April jobs report has eased fears of an imminent U.S. recession and kept hopes for a soft landing alive, but Macquarie warns that some of the economy’s recent good fortune may be fleeting, leaving it exposed to renewed risks.
April employment growth was “evidently strong in both the establishment (+177k) and household surveys (+436k),” Macquarie said, with the unemployment rate “staying constant at 4.2%, marking almost a full year that the unemployment rate has stayed inside the 4.1-4.2% range.”
The U.S economy added 177,000 jobs in April, according to Bureau of Labor Statistics data released Friday. That was well ahead of economists estimates for just 135,000 new jobs.
Yet, Macquarie flags that this cycle is breaking with history. The unemployment rate has now risen by more than half a percentage point above its low, but instead of a typical recessionary intensification, the rate has leveled off.
“Considering just the ‘hard’ unemployment rate data, this would be among the very few ‘soft landing’ scenarios in US business-cycle history,” Macquarie added.
But the analysts flag several lucky factors that may have masked underlying weakness. High-income households have remained upbeat, likely due to election-year exuberance, while a pre-election push in government spending on energy transition projects and the Fed’s rate cuts in late 2024 have also helped prop up demand. The analysts warned that these supports “won’t last and or won’t recur,” leaving the underlying softness in aggregate demand potentially unresolved.
Looking ahead, the risk is that if consumer weakness was already present and the Fed delays rate cuts due to tariff-driven inflation concerns, the negative impact of new import tariffs could be more severe than otherwise.
“If there was underlying weakness among consumers already, and the Fed won’t cut rates early enough in Q2 owing to its concern about tariff-driven inflation, then the adverse effect of the import tariffs (if they stick) may be more (negatively) impactful than they otherwise would be,” Macquarie warns.
The downside risks, however, could be potentially be offset by U.S. policymakers moving quickly on tax reform and deregulation to boost business sentiment and investment, and avoid a further slowdown beyond Q2 2025.
While the immediate threat of recession has faded, Macquarie warned that: “Outwardly, signs of a ‘soft landing’ is great news, but we all know that several things lurk in the shadows."