JPMorgan Chase on Why Businesses Are ‘Cautiously Optimistic’ Headed Into 2024

Asked by Karen Webster to offer up her thoughts on the state of the U.S. economy and how businesses are approaching 2024, Ginger Chambless, head of research at J.P. Morgan Chase Commercial Banking, offered up a two-word crystallization: “cautiously optimistic.”

We’re likely to see an economic slowdown in the months ahead, she said, the proverbial soft landing that may be punctuated by muted layoffs and a tempering of inflation.

But there are plenty of uncertainties in the mix, chiefly geopolitical tensions and war. And where uncertainty reigns, companies must be flexible.

“It’s important for forward-thinking business leaders to have some plans in place to manage their businesses through a wide range of outcomes, especially with regards to interest rates, exchange rates, the price of energy … and all of these things are important in running a business,” Chambless said.

In planning for what might be, executives could be forgiven for thinking they’ve been living through successive waves of existential challenges (Webster herself has been reading the book Permacrisis). COVID-19 stands out here, but it’s hardly the isolated crisis of our time — although it did spur a significant shift in how companies of all sizes and industries have moved into “survival mode,” as Chambless put it.

“They’ve learned to be nimble and resilient and have become creative in finding new strategies,” she said.

As a result, these companies have become stronger than they’ve been in years.

To be sure, FinTechs and digital innovators have had their share of challenges through the past few years, given plummeting valuations, a dearth of capital, and a correction in venture capital and private equity investments, which flowed into the pandemic but ebbed in 2023.

“It’s no longer a ‘rising tide lifts all boats’ environment,” Chambless said, but best-in-class companies are poised to thrive.

This year’s reality afforded some respite from what might have been and what was. Despite bank failures, the wars in Ukraine and the Middle East, and interest rates at decades-long highs, the recession that many expected did not materialize.

Still Conservative

Despite the better-than-expected economic performance in 2023, Chambless added that companies are “operating at the more conservative end of the spectrum” regarding investments and capital expenditures slated for the year ahead.

There’s some leeway here, as financial managers have not overleveraged their balance sheets, which means they also can weather a slowdown if it materializes amid a higher-for-longer interest rate environment. Quantitative tightening by the central bank will take some liquidity out of the economy, she said.

Much depends on the state and the mindset of the U.S. consumer, Chambless said, as it’s the consumer who drives two-thirds of gross domestic product (GDP). Spending is normalizing as much of the pandemic-era savings has been spent, and cash cushions have been largely depleted.

“But so long as the labor markets are supportive, consumers will keep spending,” she said, and spending growth will likely be net positive on an inflation-adjusted basis in 2024, especially as home values remain lofty and families feel relatively flush, at least psychologically speaking. If interest rates start coming down in the second half of the year, as Chambless said she expects, consumer spending may see some additional tailwinds.

As the last few weeks of December lead us into the end of a tumultuous year, Chambless told Webster that preparedness and strong balance sheets will help firms “weather even a potential slowdown on the demand side of the economy as we go into 2024.”