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JPMorgan Slices Growth Forecast; When Will Others Follow?

JP Morgan Chase
CNBC.com
JP Morgan Chase

JPMorgan emerged as the first Wall Street firm to the confessional Friday, conceding that economic growth in the first quarter will be far less than earlier optimistic projections.

The firm cut its growth projection from a fairly robust 3.5 percent all the way down to 2.5 percent, well below-par for this point in an economic recovery. Moreover, he sliced second-quarter growth down to 3.5 percent from 4 percent.

Rising energy prices, driven by Middle East turmoil and exacerbated by record-breaking levels of speculation, will cut substantially into growth, as will fiscal austerity, according to JPM’s Michael Feroli.

Interestingly, Feroli also refutes the notion that the weakness in the January jobs and retail picture was all about the foul weather. A quantitative easing (QE 2) “weather payback looks a little less plausible,” he concluded.

“[T]he trade deficit data disappointed and retail sales were just okay,” he wrote in a note to clients, referring to the past two days’ underwhelming economic data. “Accordingly, we revised down those two categories. Minor upward revisions to inventories and domestic spending on capital goods do not appear to be enough to offset the weakness in trade and consumption.”

Though JPMorgan is likely to be only the first of many to cut GDP forecasts, it qualified the move by saying there is still reason for optimism.

“To be sure, even though this is a downward revision, we wouldn't want to get stuck on only the negatives: manufacturing still looks strong, labor markets appear to be gaining their footing, and more generally, we still look for above-trend growth next quarter and for the remainder of the year,” Feroli wrote.

How quickly the rest follow suit is anybody’s guess, though having JPM take the lead eases some of the pressure.

But Neal Soss at Credit Suisse reaffirmed his global growth target of 4.5 percent, conceding that oil prices are a headwind while hiking inflation expectations. So it may take a few more wobbly numbers to convince more analysts that the economy is not ready to take off the training wheels.

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