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. This growth has been driven by consumer spending, which has been boosted by stimulus checks and a strong job market.
- Falling Unemployment: The unemployment rate has fallen to 4.8%, which is close to pre-pandemic levels.
- Rising Corporate Profits: Corporate profits have been strong, with S&P 500 companies reporting earnings growth of 89% in the second quarter.
- 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.
Risks of a Recession:
- Inflation: Inflation has been rising, with the consumer price index up 5.4% in June from a year earlier. 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.
- 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.
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. However, they caution that the risks of a recession remain “very elevated” and that investors should remain cautious.
It is worth noting that other financial institutions, such as Morgan Stanley, have also released optimistic outlooks for the US economy in 2023. Morgan Stanley predicts that the US economy will grow by 5.6% in 2023, driven by strong consumer spending and business investment. However, Morgan Stanley also notes that inflation will remain a concern, with rental inflation expected to keep inflation “very elevated” in the near term.
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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. In addition, there are ongoing geopolitical risks, such as tensions between the US and China, that could impact global trade and economic growth.
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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