Jamie Dimon is worried that U.S. consumers could spend away their savings as inflation continues to bite, sending the economy into a recession next year.
The JPMorgan Chase CEO said on Tuesday that consumers still have $1.5 trillion more in their checking accounts than they did prior to the pandemic, but warned that that may not last.
Americans are spending 10% more than they did a year ago due to inflation and rising interest rates, Dimon said, and theyre tapping into their savings to do so.
The personal savings ratewhich measures consumers savings as a percentage of their disposable incomefell to just 2.3% in October, well below the over 9% figure seen before the pandemic.
Inflation is eroding everything, Dimon told CNBC. [T]hat trillion and a half dollars will run out sometime mid-year next year. So when youre looking out forward, those things may very well derail the economy and cause the mild or hard recession that people worry about.
Dimon has warned since May that the U.S. could experience a recession next year as consumer spending falters, arguing that economic storm clouds could turn into a full-blown hurricane.
Theres storm clouds. It could mitigate; it could be a hurricane. We simply dont know, and as a risk manager I prepare for both, he said on Tuesday, repeating his previous warnings.
At the Fortune Global Forum last month, Dimon broke down his view on the odds of a U.S. recession to Fortune CEO Alan Murry.
I think theres about a 5% chance of a soft landingmaybe about a 30% chance of a mild recession, and maybe a 30% chance of a harder recessionthink a possibility of 6% unemployment, he said. And then I think theres another 30% chance of something elsemaybe stagflation or something we dont expect.
While Dimon warned about consumers fading spending power and a potential recession in 2023 this week, he also noted that the U.S. is in a good position relative to its peers.
The United States economy is the strongest economy in the world today. So we should celebrate that a little bit, he said.
U.S. consumers and the labor market have been surprisingly resilient over the past few months, despite some of the most aggressive interest rate hikes in history.
Consumer spending rose 0.5% in October month-to-monthwhen adjusted for inflationthe biggest increase since January. Americans also spent a record $11.3 billion on Cyber Monday. And the U.S. economy added 263,000 jobs last month, with the unemployment rate sticking near pre-pandemic lows at 3.7%.
Dimon argued the main risk to the economy may come from issues abroad, however, including fracturing supply chains, rising commodity prices, and war.
Theres a lot of geopolitical upheaval, he said, adding that emerging market countries will pay a heavy price for high commodity prices, rising interest rates, and the strong dollar. I dont think weve seen that kind of turmoil in the global world in a long time.
Dimon isnt the only business leader preparing for the possibility of an economic hurricane. Some 98% of CEOs expect a recession could hit the U.S. within the next 12 to 18 months. And top economists, like Queens College, Cambridge president Mohamed El-Erian, have warned that the economy is not just on the cusp of a recession, but in the midst of a profound economic and financial shift.
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