This research was published on February 17, 2023

Optimism about the economy has grown recently. This is an overdue shift in sentiment given the strengths of the U.S. economy that persisted all of last year when doomsayers called the recession prematurely. A so-called soft landing is arguably playing out.

While that sounds like an unalloyed good, for firms the reality of a soft landing is more complicated. The flip side of falling inflation is waning pricing power, falling margins, and dimmed profits — which companies have to navigate while they’re digesting still-contorted demand patterns, strained labor markets, higher interest rates, and slower growth. To navigate and remain resilient, executives will have to do more than knee-jerk defensive cost-cutting.