Interest rates be damned: 3 reasons JPMorgan’s commercial banking clients are optimistic about the U.S. economy
Federal Reserve interest rates, which influence global lending rates, are higher than they have been in 23 years. But that’s not stopping JPMorgan Chase clients from feeling optimistic.
In a survey of more than 100 founders and senior business leaders at companies generating up to $2 billion each, more than 90% said they were neutral to optimistic about the U.S. economy over the next year.
The survey is far from an anomaly, according to Ginger Chambliss, head of commercial banking research at JPMorgan. She said: luck In an interview conducted on Monday, responses pointed to broader trends in the bank’s commercial banking business. Survey respondents said three key factors were driving their optimism: anticipated market expansion, new product introductions and planned adoption of artificial intelligence.
“What they see on the ground in their own businesses gives them optimism about the prospects for their own growth trajectory, their revenues, their profits,” Chambliss says. “That’s really the ultimate goal for these business leaders.”
JPMorgan’s commercial banking business generated $15.5 billion in revenue last year, up 35% year over year, and posted $3.9 billion in the first quarter of 2024, up 12.5% from the same quarter in 2023. (JPMorgan is scheduled to hold its second-quarter earnings call on Friday.)
Despite citing many commercial concerns, 28% of respondents said they expect existing market expansions to grow over the next year, 26% expect a new product launch, and 25% plan to adopt or expand the use of AI.
Consumers, businesses and markets are coping with the recent 9.1% inflation rate better than expected, and “tight labor markets” are freeing them to think more proactively, Chambliss says. In particular, mid-sized businesses seem more willing to try new things as they grapple with what increasingly looks like a soft landing from record-high inflation, which, after falling to 3.1% in January, has rebounded to 3.3%.
Although higher rates tend to result in fewer mergers and acquisitions, 34% of leaders surveyed said they expect to engage in mergers and acquisitions in the next 12 months. As interest rates rise, hiking Over the past two years, M&A deals have fallen 32% from their all-time high, according to the M&A and Alliances Institute. According to Chambliss, founders looking at what increasingly looks like at least one price cut this year, with more to come, are likely looking to close many deals that have been “suppressed” as prices remain elevated.
Reasons for optimism
The overall positive outlook is surprising for a number of reasons. First, in a similar JPMorgan survey in January, only 67% of business leaders were optimistic about their future. I expressed Neutral or optimistic outlook for 2024. The optimism comes in the face of many concerns — and not a small one. Thirty-three percent of leaders said they were concerned about the impact of interest rates on the cost of debt, with the effective federal funds rate currently at 5.33%, a level not seen since 5.49% in February 2001. Additionally, 25% of respondents expressed concern about geopolitical conflicts, and 25% pointed to the upcoming election.
In the “all in context” category, 18% of respondents said they plan to add employees in the next year. “It’s still clear that midsize business leaders are looking to maintain or increase their workforce,” Chambliss says. “This is again a sign of optimism about growth prospects or plans—and we continue to see midsize businesses being quite resilient.” On Friday, the Bureau of Labor Statistics released its annual report on midsize business growth. Reported Nonfarm payrolls increased by 206,000 jobs last month, but the unemployment rate remained at 4.1%.
Despite the optimism among participants, Chambliss says uncertainty remains higher than usual. “What we think is best for mid-sized companies, and perhaps companies in general, is to take advantage of opportunities to reduce their exposure to risk. So whether it’s interest rates, whether it’s commodity prices, reducing risk is something that can really benefit a company in many ways — and allow them to focus on the core aspects of their business.”
The survey results were first announced last month at JPMorgan’s ninth annual Founders Forum in New York City. The event brought together 115 founders and business leaders from industries including technology, retail, food and beverage and healthcare whose companies have annual revenues ranging from $20 million to $2 billion.
