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JPMorgan Billionaire Dimon Warns Americans' Pent-Up Savings Will Deteriorate—Fueling Recession Next Year

Forbes 12/6/2022 Jonathan Ponciano, Forbes Staff

Topline

Billionaire JPMorgan CEO Jamie Dimon warned on Tuesday the strength of consumer spending is likely to wane as persistent inflation and higher interest rates force consumers to wind down excess savings accumulated during the pandemic—becoming the latest expert pointing to plummeting savings rates as a sign the economy could soon enter a recession.

Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co. Getty Images © Provided by Forbes Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co. Getty Images

Key Facts

On CNBC's Squawk Box, Dimon pointed to consumer spending climbing 10% over the past year and 40% above pre-pandemic levels as a sign the U.S. economy is "the strongest in the world today," with Americans holding on to $1.5 trillion in their bank accounts—over three times the pre-pandemic sum.

"We should celebrate that a little bit... but the other news is not good," the chief of the nation's largest bank by assets continued, saying higher interest rates and persistent inflation are "eroding everything... and that $1.5 trillion will run out sometime [in the middle of] next year."

As savings deteriorate, lower consumer spending "may very well derail the economy and cause the mild or hard recession that people are worried about," Dimon said, citing geopolitical tensions and a possibility the Fed starts lowering interest rates too quickly as two of the biggest risks facing the economy.

According to the Bureau of Economic Analysis, the personal savings rate has plummeted from a record high of more than 33% in April 2020—when the government started delivering more than $931 billion in stimulus checks to Americans—to just 2.3% in October, the lowest level in 17 years.

In a Monday note to clients, a Morgan Stanley team led by Lisa Shalett also warned of changing consumer habits, saying the spending spree that has kept consumer demand growing quickly this year "increasingly seems to be coming at the expense of savings and credit card balances," with credit balances now exceeding a pre-pandemic peak.

Unless the labor market remains very strong next year, Shalett says the strong consumer spending will likely subside, further weighing on the economy, which has already seen recession odds "rising materially."

Key Background

Boosted by pandemic-era government stimulus, the job market performed remarkably well and consumer spending nabbed a record last quarter. However, lingering inflation has experts worried how long the strength could last. "Investors should remain cautious," says Nigel Green, the CEO of wealth advisor DeVere Group, adding: "Whilst it has cooled, inflation is still way too hot for central banks to step down from their agendas… just yet.” Though the consumer price index has fallen from a peak of 9.1% in June, the annual rate of 7.7% is still nearly four times the Fed's long-standing inflation target of 2%.

Forbes Valuation

Dimon is worth an estimated $1.6 billion, according to Forbes. The 66-year-old took over as JPMorgan's CEO in 2006.

Further Reading

Not Just The Housing Market: Recession Threatens 'Unprecedented' Manufacturing Slowdown Dragging Into Next Year (Forbes)

Labor Market Still Stronger Than Economists Think: U.S. Added 263,000 New Jobs In November (Forbes)

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