The better-than-expected April jobs report has eased fears of an impending recession in the U.S. and maintained hopes for a soft landing, but Macquarie warns that some of the recent favorable factors in the economy may only be temporary, leaving the economy facing new risks.
"Job growth in April was clearly strong in both the establishment survey (+177 thousand) and the household survey (+436 thousand)," Macquarie said, with the unemployment rate "remaining stable at 4.2%, marking nearly a year of the unemployment rate being in the range of 4.1-4.2%."
The U.S. economy added 177,000 jobs in April, according to data from the Labor Statistics Bureau released on Friday. This figure far exceeded economists' forecasts of only 135,000 new jobs.
"Considering only the 'hard' data on the unemployment rate, this would be one of the very few 'soft landing' scenarios in the history of the U.S. business cycle," Macquarie added.
But analysts point out that some lucky factors may have masked underlying weaknesses. High-income households remain optimistic, possibly due to the excitement of the election year, while the ramp-up of government spending ahead of the election for energy transition projects and the Federal Reserve's interest rate cuts at the end of 2024 have also helped support demand. Analysts warn that these supports "will not last or will not be repeated," leaving potential weakness in overall demand that may have yet to be addressed.
Looking ahead, the risk is that if consumer weakness has already manifested and the Fed delays interest rate cuts due to concerns about inflation caused by tariffs, the negative impact of the new import taxes could be more severe.
"If there has been underlying weakness among consumers, and the Fed does not cut interest rates soon enough in Q2 due to concerns about inflation caused by tariffs, then the adverse impact of import taxes (if they exist) could be more significant (negative) than in other cases," Macquarie warns.
However, negative risks could be offset by U.S. policymakers quickly implementing tax reforms and reducing regulations to boost sentiment and business investment, while avoiding further decline after Q2 2025.
Although the immediate threat of recession has diminished, Macquarie warns that: "Externally, signs of a 'soft landing' are good news, but we all know that there are many issues lurking in the dark."
