Hard-Landing Rebuffs Are ‘Dangerously’ Similar to 2007

Estimated read time 3 min read
  • Recession views are dangerously similar to those in 2007, SocGen’s Albert Edwards said.
  • Edwards sounded the alarm for a potential downturn, pointing to signs of weakness in the US economy.
  • Soft landing or no landing outlooks are growing on Wall Street as the US appears on solid economic footing.

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Most forecasters seem to have thrown in the towel on their recession calls, and that’s making the environment feel “dangerously” similar to 2007, according to Société Générale’s chief global strategist Albert Edwards.

Edwards, who has warned previously that the US faces a decent risk of a recession, pointed to several indicators of a coming downturn that are flashing in the economy. 

While GDP and jobs growth look resilient on the surface, the Chicago Fed’s National Activity Index, a broad gauge of economic activity, actually shows that economic growth has been below 1% for at least the last six months, he noted. 

Meanwhile, employees, especially high earners, are feeling less confident that they’ll be able to get a new job. On average, workers estimate they have just a 52% chance of finding a new job in the next three months if they were to lose their current job, according to the New York Fed’s Survey of Consumer Expectations.

The labor market has also been signaling flat growth for nearly a year now, Edwards said, citing household employment surveys from the National Federation of Independent Business. That’s a strong sign there “may be trouble ahead,” and views of a strong US economy could be at risk of “collapse,” he warned.

Those signs appear lost on many other market commentators, who have dialed back their recession views in the last few months. 91% of economists believe that the economy has less than a 50% chance of entering a downturn over the next year, per the latest National Association of Business Economics survey. Even known permabears, like “Dr. Doom” economist Nouriel Roubini, have softened their outlooks for the economy in the year ahead.

“The simple fact is that record highs in the equity market have buoyed the economic narrative. Yet despite one or two key data points coming in surprisingly robust — particularly non-farm payrolls and GDP — much else has looked frail,” Edwards said in a note on Wednesday. “All this is (dangerously) reminiscent of 2007, when all around were telling me I was wrong and should give up calling that much-delayed recession,” he later added.

Edwards was among the strategists who foresaw the dot-com crash in the early 2000s and the bursting of the bubble that kicked off the Great Financial Crisis. 

The outlook for a soft landing has grown as markets position for rate cuts from the Fed. Investors are pricing in a 42% chance the Fed could cut rates by 100 basis points or more this year, according to the CME FedWatch tool, and most still see the first cut coming in June despite inflation remaining above the central bank’s target.

Meanwhile, over 50% of investors say they feel bullish on stocks over the next six months, per the AAII’s latest Investor Sentiment Survey.