Is economy on track for soft landing? Jobs report might offer clues.

Can the U.S. economy achieve a much-hyped “soft landing”? Friday’s jobs report for November will provide some signs of whether that elusive scenario is coming into view.

Many of the most recent economic figures have been encouraging. Companies are advertising fewer job openings, and Americans are switching jobs less often than they did a year ago, trends that typically slow wage growth and inflation pressures. Hiring is cooling, and price increases have moderated significantly.

All of which means the Federal Reserve might stand an increasingly good chance of bringing inflation down to its 2% annual target without causing a deep recession—the common definition of a soft landing.

Yet that effort isn’t without risks. The economy could slow so much as to slide into a recession. The unemployment rate, which began the year at an ultra-low 3.4%, has since risen to 3.9% as more Americans have come off the sidelines to look for jobs and not found them right away. The number of people receiving unemployment aid, though still low, has risen. And for much of this year, hiring has been concentrated in just a few sectors — notably health care, restaurants and hotels, and government—rather than broadly across the economy.

The November jobs report from the Labor Department is expected to show that employers added a still-solid 172,500 jobs last month, according to a survey of economists by FactSet. That would slightly exceed October’s 150,000 gain.

But November’s increase will be exaggerated by the addition of United Auto Workers members as well as by Hollywood actors whose strikes ended in October and who returned to work in November. Their return is expected to account for about 40,000 of November’s job gains.

Hiring has been cooling as the Fed’s sharp interest rate hikes have raised borrowing costs for consumers and businesses, depressing sales of homes, cars, appliances and other high-priced purchases and investments. From August through October, job growth averaged 204,000 a month, down sharply from a 342,000 average in the same three-month period in 2022.

Though the nation’s jobless rate remains comparatively low, economists nevertheless worry that a rising rate can feed on itself: Unemployed workers tend to cut back on spending, thereby slowing the economy and leading other businesses to lay off employees, too. By one rule of thumb, if the jobless rate were to rise just a few tenths of a percentage point more, the increase would be consistent with the start of a recession.

Yet if the data did start to point toward a recession, Fed Chair Jerome Powell could signal that the central bank would cut rates soon to lower borrowing costs. Such a message would likely ignite a rally in the financial markets and potentially boost the economy.

For now, most analysts are offering a positive outlook of slower but still steady growth and easing inflation. The economy is expected to expand at a modest 1.5% annual rate in the final three months of this year, down from a scorching 5.2% pace in the July-September quarter. Cooler growth should help bring down inflation while still supporting a modest pace of hiring.

The economy is still expanding even after the Fed has raised its benchmark rate 11 times, from near zero in March 2022 to about 5.4%, the highest level in 22 years. The aggressive pace of those hikes has made mortgages, auto loans and business borrowing much more expensive.

At the same time, inflation has tumbled from a peak of 9.1% in June 2022 to just 3.2% last month. And according to a different inflation measure that the Fed prefers, prices rose at just a 2.5% annual rate in the past six months—not far below the central bank’s target.

Such progress has fueled speculation in the financial markets that the Fed could soon cut its benchmark rate, perhaps as early as March. Wall Street traders now expect five rate cuts next year, according to futures prices tracked by CME FedWatch. Most economists envision fewer.

Christopher Waller, a key Fed official who typically favors higher rates, buoyed the markets’ expectations last week when he suggested that if inflation kept falling, the Fed could cut rates as early as spring.

Powell, though, pushed back against such speculation last Friday, when he said it was “premature to conclude” that the Fed has raised its benchmark rate high enough to quell inflation. And it was too soon, he added, to “speculate” about when the Fed might cut rates.

But Powell also said interest rates are “well into” restrictive territory, meaning that they’re clearly constraining growth. Many analysts took that remark as a signal that the Fed is done raising rates.