JP MORGAN CHASE(US:JPM)2025-11-27 05:43Summary of J.P. Morgan's 2026 US Economic Outlook Industry Overview - The report focuses on the US economy, particularly the implications of government policy, labor market dynamics, inflation, and the impact of artificial intelligence (AI) on productivity and investment. Key Points and Arguments Economic Growth and Inflation - Real GDP growth is projected at 1.8% for 2026, consistent with the previous year, with core PCE inflation expected at 2.7% [4][8] - The Federal Reserve is anticipated to cut rates in December and January, with a potential increase of 50 basis points in the first half of 2027 as labor market conditions tighten and inflation remains above target [4][11] Labor Market Dynamics - Unemployment is expected to rise slightly to 4.5% early next year, with a gradual tightening anticipated later in the year [4][8] - The labor market is experiencing a slowdown in both supply and demand, with gross hiring cooling and increased layoff activity raising concerns about net job growth [6][8] - Breakeven payrolls could fall below 50,000 per month due to immigration cuts and an aging population [4][6] Business Investment and AI - Business investment is projected to grow moderately, supported by ongoing AI capital expenditures, although overall growth is not expected to be exceptionally strong [4][8] - AI-related capital expenditures are expected to slow from 69% growth in 2025 to 33% in 2026 [44][46] - Despite the enthusiasm for AI, productivity growth remains subdued, with nonfarm productivity growth expected to stabilize around 1.5% [29][30] Trade and Tariff Implications - The static tariff rate has increased to 16.5%, translating to an annual tax of over $500 billion on imported goods, although actual tariff collections are lower at about $390 billion [14][16] - The Supreme Court's decision on IEEPA tariffs could create policy uncertainty, impacting future tariff collections and overall trade dynamics [18][20] Residential Investment Outlook - Residential investment is expected to stagnate, with a projected contraction of 1.6% in 2026 due to a persistent supply shortage and high mortgage rates [63][64] - Existing home sales are likely to remain weak, closely tied to mortgage rate fluctuations [64][65] Fiscal Policy and Deficit Projections - The federal deficit is projected to remain stable, expanding slightly from 5.9% of GDP in FY25 to 6.2% in FY26, with tariff revenues offsetting tax cuts from the OBBBA [24][25] - The OBBBA is expected to provide modest fiscal support, with tax changes benefiting households in the first half of 2026 [4][7] Risks and Uncertainties - Risks include the potential for a recession, with a one-in-three chance due to labor market weaknesses not being arrested by supportive measures [12][8] - Upside risks exist if AI leads to quicker productivity gains than anticipated, but financial market leveraging could also lead to a reset of expectations [12][8] Additional Important Insights - The report emphasizes the ongoing challenges in the labor market, including the impact of immigration policies and the potential for increased deportations to further constrain labor supply [66][70] - The interplay between trade policy, inflation, and business investment remains a critical area of focus, with tariffs contributing to business uncertainty and investment hesitance [80][81]