Banking powerhouse JP Morgan is warning that recession risk in the U.S. is rising rapidly, despite continued statements from Federal Reserve officials and bull market analysts who say the country’s economic fundamentals are strong.
In a research report released this week, the bank’s analysts conclude that disturbing trends in labor market productivity, the historic collapse of global oil prices, and the strength of the U.S. dollar have gutted corporate profits. These three in tandem have increased the likelihood that businesses will nix planned investments and future projects as well as roll back hiring, further heightening the risks of a slowdown in an already fragile economy, reports Business Insider.
A chart provided by JP Morgan to Business Insider shows the growing risk facing the U.S. economy:
“With the drag on US earnings intensifying and business spending softening, the risks of a broader business pullback remain elevated. Our US recession probability tracker has moved higher in recent weeks, reinforcing this point,” the research report stated.
Despite the carnage in the stock market, analysts and officials at the Federal Reserve maintain their belief that these are just head winds from overseas volatility and that long term economic projections are promising. Cleveland Fed President Loretta Mester said publicly Thursday that she expects the Fed to raise interest rates again in 2016 to hit their inflation target of 2 percent, reports CNBC. In 2015, inflation grew at a rate of just 0.7 percent. (RELATED: US Stocks Crumble As Market Panic Rises)
JP Morgan specifically points to labor productivity as one of their chief concerns, noting that it has stalled or is declining, an ominous sign for the economy. Labor productivity is a measure of the goods and services produced by one hour of labor in the U.S. Another troubling area was corporate profitability, which their research indicated experienced a 10 percent year-on-year decline, reports Business Insider.
“The squeeze on U.S. margins is most severe and downside risks are the greatest,” read JP Morgan’s research report. “A double-digit decline in profits is a rare event outside recessions, having been recorded only twice in the last half century.”
Markets today are taking a big hit as anxiety continues to grow among investors and consumers over the long term growth potential of the U.S. economy. With oil prices sitting around $30 a barrel and China’s unpredictable markets the sustainability of global growth is in question. In the U.S. the labor market added only 151,000 new jobs in January, below what were already low expectations. The most recent GDP measure from December showed growth slowing to an anemic 0.7 percent. (RELATED: GDP Rises Only 0.7%, Market Fears Grow)
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