Is the world's largest economy headed towards a recession? Jahangir Aziz, the head of emerging market economics at JPMorgan has a more optimistic view on the growth prospects of the American economy.
“I think it is important to distinguish between a rise of recession risk and realization of a recession, and the difference between the two lies in what policy makers or the government does in response to the risk,” Aziz told Moneycontrol in an interview.
JPMorgan Chase had raised the probability of a U.S. and global recession starting before end of 2024 to 35 percent, up from 25 percent, in its mid-year outlook. Aziz said the risk profile was raised based on low wage growth and other granular details from the US labor market report.
The US economy has been showcasing strength in the job market, though there has been some uncertainty as to how sustainable is this trend - driven by small businesses and not large corporations. Small businesses traditionally are the first to slash jobs if earnings start to fall or cash flows turn negative, Aziz said.
There has been a 7-8 month period of rise in the US unemployment rate, but Aziz does not find it worrying. “None of them are alarming, or the reason why we increased our recession risk. First of all, there could be an increase because of the hurricane Beryl, which reduced workhours a lot in the Midwest. Most likely, that is going to come back next month. The increase in unemployment rate is happening as more people want jobs, and that’s a good thing. It’s not that people are being laid off. However, there were 2-3 granular data points in the labor market report that made us increase our recession risk. There was a sharp drop in wage growth, and the number of months a person is unemployed before he gets a job has actually lengthened,” Aziz observed.
The US unemployment rate jumped to a near three-year high in July at 4.3 percent, marking the fourth straight month of rise. This reading is the highest since September 2021, adding to the hopes of a September rate cut by the US Federal Reserve, though some economists have been calling for a 50 basis point reduction in borrowing costs.
“We have the Fed taking US rates from 5.5 percent to 3 percent by July 2025. If the responses materialize what you will actually get in the US in an extension of the expansion, rather than truncation of the expansion. So in 2025, we are actually looking for an uptick in the growth rate in the US because of policy actions taken in the second half of this year. It’s actually a reasonably strong economy in 2025.”
You can watch the full conversation with Jahangir Aziz right here.
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