By Sam Boughedda
JPMorgan (NYSE:JPM) analyst Michael Feroli said in a note Friday that softer economic data this week is leading the firm to revise its tracking of second-quarter annualized real GDP growth from 2.5% to 1%, and its projection for the third quarter from 2% to 1%.
"The recent trajectory for consumer spending indicates a significant loss in momentum through the middle of 2Q, and our Chase card data suggest spending growth remained sluggish in June," said Feroli. "We look for growth to modestly accelerate toward year-end, reaching 1.5% in 4Q on the back of stronger motor vehicle production and some purchasing power relief from more modest headline inflation."
The analyst said their forecast comes "perilously close" to a recession.
However, they believe the economy will expand, partly because they think employers may be reluctant to shed workers, even during a period of soft product demand.
"The fact that jobless claims have only modestly drifted higher in the first half—when output growth may have been about flat—is an encouraging signal about the resiliency of the labor market," added Feroli.
He concluded that the Fed's current outcome-based approach to inflation means near-term growth softness should not deter it from hiking aggressively in the second half of the year. "Whereas previously we saw upside risk to our terminal funds target range of 3.25%-3.5%, we now see some downside risk," he concluded.