JPMorgan Chase analysts now see a greater chance that the U.S. economy will enter a recession by the end of the year.
In a Wednesday analyst note, JPMorgan economists led by Bruce Kasman raised the odds of an economic downturn this year to 35%, up from their previous 25% estimate, citing easing labor market pressures.
“U.S. wage inflation is now slowing in a manner not seen in other DM [developed market] economies,” they wrote. “Easing labor market conditions increase confidence both that service price inflation will move lower and that the Fed’s current policy stance is restrictive.”
They still see a 45% chance of a recession in the second half of 2025.
US JOB GROWTH SLOWS TO 114K IN JULY WHILE UNEMPLOYMENT UNEXPECTEDLY JUMPS
The economists also lowered the odds that the Federal Reserve keeps interest rates higher for longer to just 30%. With inflation easing, JPMorgan expects the central bank to cut rates twice this year, in September and November.
“This modest increase in our assessment of recession risk contrasts with a more substantial reassessment we are making to the interest rate outlook,” they wrote.
INTEREST RATE CUTS ARE ON THE HORIZON, BUT HIGH MORTGAGE RATES COULD BE HERE TO STAY
The analyst note comes on the heels of the disappointing July jobs report, which showed that total nonfarm payrolls grew by just 114,000 in July, while the jobless rate unexpectedly jumped to 4.3%. The report reignited fears of a slowing economy, because it triggered the so-called Sahm Rule, an indicator that is used to provide an early recession signal.
The rule stipulates that a recession is likely when the three-month moving average of the jobless rate is at least a half-percentage point higher than the 12-month low.
Over the past three months, the unemployment rate has averaged 4.13%, which is 0.63 percentage points higher than the 3.5% rate recorded in July 2023. The Sahm Rule has successfully predicted every recession since 1970.
Still, Claudia Sahm — a former Fed economist and the creator of the rule — has suggested that the rise in unemployment this time around may not be indicative of an impending recession. She noted the rise in the jobless rate is not the result of layoffs and negative monthly payroll numbers, but rather an increase in the number of available workers, including immigrants.
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“What we’re seeing, even if the Sahm Rule is overstating it some, it is picking up on something that is very worrisome,” Sahm told FOX Business’ Charles Payne on Wednesday.
Stocks plunged on Friday following the jobs report, with the S&P 500 notching its worst day since October 2022. Markets have been highly volatile since then, although they opened higher on Thursday after jobless claims data came in better than expected.
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