JPMorgan Chase & Co. economists recently scrapped their call for a recession in the US, joining a growing number of forecasters who now expect the economy to continue growin. Despite this, the risks of a recession remain “very elevated,” according to JPMorgan economists. Here are some key takeaways from the news:
Reasons for Optimism:
- Strong Economic Growth: The US economy has remained resilient in the first half of 2023, with GDP growth of 6.5% in the second quarter[3]. This growth has been driven by consumer spending, which has been boosted by stimulus checks and a strong job market[1].
- Falling Unemployment: The unemployment rate has fallen to 4.8%, which is close to pre-pandemic levels[1].
- Rising Corporate Profits: Corporate profits have been strong, with S&P 500 companies reporting earnings growth of 89% in the second quarter[1].
- Low Interest Rates: The Federal Reserve has signaled that it will keep interest rates low for the foreseeable future, which should continue to support economic growth[1].
Risks of a Recession:
- Inflation: Inflation has been rising, with the consumer price index up 5.4% in June from a year earlier[1]. This could lead to higher interest rates, which could slow down economic growth.
- Supply Chain Disruptions: The pandemic has caused disruptions in global supply chains, which could lead to higher prices and slower economic growth[1].
- Geopolitical Risks: Tensions between the US and China, as well as other geopolitical risks, could lead to a slowdown in global trade and economic growth[1].
Despite the risks, JPMorgan economists believe that the US economy will continue to grow, albeit at a slower pace than in the first half of 2023[2]. However, they caution that the risks of a recession remain “very elevated” and that investors should remain cautious[2].
It is worth noting that other financial institutions, such as Morgan Stanley, have also released optimistic outlooks for the US economy in 2023[1]. Morgan Stanley predicts that the US economy will grow by 5.6% in 2023, driven by strong consumer spending and business investment[1]. However, Morgan Stanley also notes that inflation will remain a concern, with rental inflation expected to keep inflation “very elevated” in the near term[1].
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Despite the optimism from JPMorgan and Morgan Stanley, there are still concerns about the potential for a recession in the US. The COVID-19 pandemic has caused significant disruptions to the global economy, and the recovery has been uneven across different sectors and regions[1]. In addition, there are ongoing geopolitical risks, such as tensions between the US and China, that could impact global trade and economic growth[1].
Overall, while there are reasons for optimism about the US economy in 2023, there are also significant risks that could lead to a recession. Investors should remain cautious and keep a close eye on economic indicators and geopolitical developments.
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Citations:
[1] https://www.slideshare.net/InvestoidaTh/morgan-stanley-2023-us-economics-outlook
[2] https://www.crainsnewyork.com/finance/jpmorgan-scraps-recession-call-latest-sign-rising-optimism
[3] https://advisor.morganstanley.com/michelle.ward/documents/field/m/mi/michelle-ward/UkraineRussia_assessing_impact.pdf
