Economists at JPMorgan Chase & Co. (NYSE: JPM) have discarded their previous prediction of an impending recession in the United States. This move aligns JPMorgan with an increasing number of analysts who believe the economy will dodge a downturn.
Continued Economic Expansion Predicted
Contrary to a prior forecast of a recession commencing in 2023, the bank's economists now anticipate sustained economic growth this year, followed by a period of "modest, sub-par growth" in 2024, as reported Friday by Bloomberg.
Michael Feroli, the bank's chief U.S. economist, highlighted the potential for "healthy non-inflationary growth" driven by productivity enhancements from artificial intelligence and a resurgence in labor supply.
Positive Earnings Season And Economic Outlook
David Lebovitz, JPMorgan global market strategist, expressed a particularly positive outlook for the earnings season in a July 28 note.
A notable 73% of companies have surpassed earnings estimates, while only 51% have exceeded revenue estimates due to slowing inflation. Despite this, both earnings and revenue surprises have been positive, with earnings outperforming estimates by an average of nearly 5%. Profit margins have seen only a slight decrease.
Despite the optimistic outlook, Feroli cautioned in a note to clients Friday: "While a recession is no longer our modal scenario, risk of a downturn is still very elevated." He suggested that this risk could materialize if the Federal Reserve continues to increase interest rates.
Earlier this week, Bank of America Corp. (NYSE: BAC) became the first major Wall Street bank to officially revise its forecast, reflecting a growing optimism about the economic outlook. This change in perspective follows a similar shift among the Federal Reserve's own economists.
In July, U.S. private businesses added 189,000 nonfarm payrolls, falling short of economist expectations of 200,000. The unemployment rate dropped from 3.6% to 3.5%, nearing multi-decade lows, while average hourly earnings increased more than anticipated.
David Kelly, chief strategist at JPMorgan Asset Management, said that while the U.S. labor market momentum is moderating, it's unlikely to cause a significant rise in unemployment or a slowdown in wage growth before year's end. He said he expects consumer inflation to remain near its current 3% year-over-year pace for the next few months before declining further in 2024.
"The July jobs report is unlikely to change the odds on any further Fed tightening - the July and August CPI reports will likely be much more important in determining whether the Fed feels the need to hike further," Kelly wrote.