Why the next US recession may be pushed back to 2025, according to JPMorgan (2024)

• Fears of an economic recession may have to be pushed back to 2025, according to JPMorgan.
• US factory activity expanded in March for the first time since September 2022.
• JPMorgan said the rebound in manufacturing activity bodes well for continued economic resilience.

The long-awaited recession that many economists and investors have been fearing may have just been delayed to 2025, according to a recent note from JPMorgan's trading desk.

The note highlighted the unexpected strength seen in ISM manufacturing activity in March, which jumped above 50 for the first time since September 2022. A reading above 50 represents an expansion in manufacturing activity, while a reading below 50 represents a contraction.

The strong manufacturing data ended a 16-month decline in US factory activity, as solid demand for goods led to a sharp rebound in production during the month.

JPMorgan's Ellen Wang and Andrew Tyler of the Market Intelligence team said the reading "contributes additional evidence on the global recovery in manufacturing."

The data comes as global PMIs are also reflecting higher, suggesting that the strength is not limited to US factories.

According to Wang and Tyler, the economic data should "give more confidence that the US economy is recovering in additional sectors" and that "recession fears for 2024 are likely to be pushed into 2025."

If a potential recession is pushed back to 2025 because of the solid manufacturing data, it would represent yet another year in which many economists were off in their recession predictions, though some have backed off their call for a recession following the resilience seen throughout 2023 even amid higher interest rates.

Current concerns of a recession revolve around the scenario in which inflation remains stubborn and difficult to contain, leading the Federal Reserve to keep interest rates higher for longer.

But Tyler and Wang aren't worried about that scenario, neither for corporate profits nor for the stock market.

"This is not an issue for stocks where we continue to see Size/Quality types of names dominating sector performance as these companies continue to print strong earnings numbers in an elevated rates environment and did this in 2023 when much of the world was materially weaker than they are today," the note said.

JPMorgan's trading desk also argued that solid labor supply should help mute wage inflation, which represents a major component of overall inflation.

Backing up JPMorgan's view of a delayed recession, aside from the strong ISM manufacturing data, is the Fed's GDPNow estimate of 2.8% economic growth in the first quarter, elevated job openings, and historically low unemployment claims.