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Tuesday, Dec 5, 2023

‘Mild’ Recession, Quick Recovery Expected in ’23

ECONOMY: Big 3 Banks Share Forecasts

According to the nation’s three largest banks, 2023 will bring both recession and a recovery.

Ahead of the new year, JPMorgan Chase, Bank of America and Wells Fargo all issued separate reports predicting recession in the first half of 2023 followed by quick recovery by the end of the year.

In its report titled “See The Potential – Weaker Growth, Stronger Markets,” JPMorgan Chase is predicting weaker economic growth but also strengthening financial markets that will lead to a rebound and recovery.

Antolin Garza
Global Investment Specialist
J.P. Morgan Private Bank, San Diego

“Overall, given the lack of leverage within the broader financial system, we do not believe the merits for a financial crisis exist,” said Antolin Garza, global investment specialist at J.P. Morgan Private Bank in San Diego.  “That said, the variable severity of financial tightening has already made its way into the housing market, and we believe there will be follow through to various components of the broader economy before financial markets can look past a recessionary period.”

Stephen Juneau, U.S. economist at Bank of America Global Research, said Bank of America expects the recession to be “mild and short lived.”

Stephen Juneau
U.S. economist
Bank of America Global Research
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Bank of America’s report “10 Key Themes from Strategy and Macro Year Ahead” predicts the recession will start in the later part of the first quarter.

“In terms of depth, we predict GDP to fall by about 1% from peak-to-trough,” Juneau said.

Wells Fargo’s report, “Outlook 2023: Recession, Recovery and Rebound,” also predicts recession in the first half of the year followed by a recovery as inflation drivers like oil prices, food prices and wage gains give way, and the pace of inflation slows. The report predicts a 1.3% drop in U.S. GDP.

Fed Rate Hikes

The slowing economy will also trigger an easing of rate hikes by the Federal Reserve, according to the bank reports.

Bank of America predicts the Fed to hike rates two more times this year – 50 basis points in February and 25 basis points in March – to a rate of 5 to 5.25%. BofA predicts the rate will stay there “until there has been a meaningful moderating in inflation and a significant cooling off in the labor market,” Juneau said.

According to BofA, those conditions will not be met until December 2024, when it sees inflation running below a 3% annualized pace and the unemployment rate about 2 percentage points higher. “That should allow the Fed to begin cutting rates, but the stickiness of inflation, particularly services, will likely mean a slow unwind by the Fed,” Juneau said.

JPMorgan Chase believes the Fed will decelerate and then pause its rate hikes in the first half of 2023. However, Garza said, there will need to be “broad visible economic deterioration” before the Fed eases or cuts rates. “Economic deterioration has become visible in some segments of the economy such as housing and will shortly make it apparent that the effects of financial tightening are running their course,” he said.

The Wells Fargo report has a more optimistic outlook for the Fed funds rate, predicting it will peak at 4.50% in early 2023 and settle at 3.50-3.75% by the end of the year.


The rise in interest rates has begun to take effect on employment, according to JPMorgan Chase, and the bank predicts unemployment will continue to increase on a broader basis in 2023.

“Currently, we’ve seen initial increases in unemployment in focused segments of the economy such as residential mortgage services and technology,” Garza said. “The Federal Reserve has made it clear they intend to slow wage growth and increase unemployment to combat this inflationary environment. It is our expectation that they will be successful in pursuing these goals in 2023.”

Bank of America is expecting the unemployment rate to go up 2% as the Fed tries to “actively cool off the labor market,” Juneau said, adding that BofA is keeping an eye on labor market momentum as one of the areas of uncertainty for 2023 because continued health in the labor market could “push out the recession” and “force the Fed to do more.”

“This, in our view, could result in a more severe recession,” he said. “On the other hand, goods prices are falling rapidly, which is likely to continue. While this may contribute to a sharper drop in headline and core inflation, we think the Fed will stay focused on the stickier services inflation.”

The Wells Fargo report, on the other hand, cites a “resilient labor force” as a reason to forecast a moderate recession in 2023. Possible drivers of a more severe or longer-lasting recession, according to Wells Fargo, would more likely be extreme quantitative tightening at the Fed or commodity shortages that raise the cost of raw materials.

San Diego Outlook

Because of San Diego’s unique economy, fueled by international and industry diversity, the region has “relative strength in enduring any near-term economic slowdown,” Garza said.

“While San Diego is not fully immune to global economic conditions, we believe San Diego is in a fortunate position to display resiliency through relative economic strength and be poised to thrive as we navigate this uncertain economic period,” he added.

Garza pointed out that San Diego’s recent unemployment rate  was around 3.1% – lower than the national rate of roughly 3.7%.

“The current contrast between the local and national unemployment rate is likely to stand as a depiction of our expectations of San Diego’s resiliency,” Garza said. “The Federal Reserve has forecasted the national unemployment rate to reach approximately 4.4% at the end of 2023. Again, we believe San Diego is not immune to national economic impacts, but we do believe San Diego is in prime position to display a more resilient employment climate compared to national measures.”

Rocio Montejano
SVP, Small Business
Bank of America, San Diego

Rocio Montejano, senior vice president for small business for Bank of America in San Diego pointed to the region’s resilient small businesses as a sign of how the San Diego might weather a downturn.

“Throughout the year, San Diego small businesses were in a strong recovery and growth mode, with demand for capital by our clients reflecting this momentum,” she said. “As we prepare for the first quarter of 2023, we are working closely with our small business clients to navigate through economic challenges.”

Motejano suggested businesses take advantage of opportunities like restructuring debt, reducing operating costs and digitizing services as smart moves to make to prepare for an economic downturn.

Chris Amble
Commercial Banking Market Executive
Wells Fargo, San Diego

Chris Amble, commercial banking market executive for Wells Fargo in San Diego, also shared insights on how local businesses can deal with economic challenges in 2023.
“Between supply chain stagnation, rapid inflation, rising interest rates, and one of the tightest labor markets to date, San Diego business leaders continue to operate in an environment that many haven’t seen in their professional lifetimes,” he said. “While escalating interest rates are no longer a surprise, with each Fed announcement, I’m having more conversations with San Diego business leaders to help them develop creative financing solutions to meet their short and long-term goals.”

Amble suggested businesses look to automate operations by investing in technologies that can mitigate labor shortages, such as inventory management systems and treasury management services to improve cash flow and save on labor costs by optimizing digital payments and streamlining account receivables.

Amble also suggested companies utilized supply chain financing to “help bridge inventory and account receivables gaps.”


JPMorgan Chase, “See The Potential – Weaker Growth, Stronger Markets” – www.tinyurl.com/ywmztn4u

Bank of America, “10 Key Themes from Strategy and Macro Year Ahead” – www.tinyurl.com/yhfve6ee

Wells Fargo, “Outlook 2023: Recession, Recovery and Rebound” – www.tinyurl.com/5dzc48c9


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