US Recession Forecast Abandoned by JPMorgan Economists, Healthy Economic Growth Anticipated

The leading financial experts at JPMorgan, the most sizable bank in the US, have reconsidered their previous thoughts about a potentially significant decline in the economy. Now, they anticipate that the economy will continually grow. This matches the thinking of more and more experts on Wall Street who think the economy will avoid going downward. This new viewpoint means that top money people are feeling better about where the economy is heading.

The bank has lifted its guess for how much the economy will grow this year to 2.5% instead of the 0.5% they thought before, suggesting a “good speed” of growth, according to Michael Feroli, JPMorgan’s Main Economist, in a note he wrote on Friday.

Favorable Economic Indicators

The upward revision in the economic forecast comes on the back of several favorable factors:

• The swift resolution of the debt ceiling impasse in Congress earlier this year.
• Effective containment of a regional banking crisis.
• Promising signs of improving supply-side performance were observed in second-quarter productivity data.
• A surge in labor supply even amidst softening hiring in recent months.
• Further productivity gains are expected from the increased implementation of artificial intelligence.

Other Key Observations

Bank of America and Goldman Sachs, along with other banks, have updated their economic predictions, indicating a shift in Wall Street’s views. For example, Goldman Sachs reduced its recession risk estimate from 25% to 20%. Bank of America anticipates a 2% increase in growth this current year, followed by a hike of 0.7% in 2024 and 1.8% in 2025.

An optimistic outlook for the earnings season was expressed by David Lebovitz, JPMorgan’s Global Market Strategist, who noted that a significant 73% of companies surpassed earnings estimates, with earnings outperforming estimates by an average of nearly 5%.

However, despite this bullish outlook, Feroli cautioned that the “risk of a downturn is still very elevated” due to potential further rate hikes by the Federal Reserve.

Risks and Recession Indicators

Despite the upbeat prediction, Feroli underlined that recession risks are still present, especially if the Federal Reserve continues to hike rates. The central bank has implemented 11 interest rate increases since March 2022, amounting to 5.25 percentage points. An “upside inflation surprise” could prompt the Federal Open Market Committee (FOMC) to further raise interest rates, Feroli warned.

A New York Fed indicator that tracks the difference between 3-month and 10-year Treasury yields points to a 66% chance of a contraction in the next 12 months. This indicator, the so-called inverted yield curve, has historically been a reliable recession predictor.

Feroli expects that the Federal Reserve won’t start cutting rates until the third quarter of 2024, although current market pricing indicates that the first cut could come as soon as March 2024.

Labor Market and Wage Growth

Understanding Job Market Changes: JPMorgan Planner Doesn’t Foresee Drastic Shakes Even with minor changes popping up in the job market, David Kelly, the chief organizer at JPMorgan Asset Management, doesn’t believe we’ll see a big jump in unemployment or a decline in what workers earn by the end of this year. He anticipates that the speed at which customer prices increase will remain roughly stable with the current annual rate of 3% for a bit more before it begins to dip again in 2024.

In general, economists and planners are paying close attention to how the economy is changing. The upcoming July and August CPI reports will be crucial in determining the Federal Reserve’s next move regarding potential rate hikes. For a deeper understanding of the US economic trends, visit the Federal Reserve’s official website.