Bank of America Corp.'s midsize-business clients are indicating confidence in their future growth, adding to hopes for a gentle landing after months of dire warnings that a US recession is imminent.
Approximately 75% of medium-size businesses surveyed by Bank of America in May anticipate an increase in revenue, and 71% plan to hire. Nearly all of them plan to secure funding for their plans over the next 12 months, according to the survey of over 300 business owners.
"The companies we serve remain optimistic," said Raul Anaya, the company's president of business banking, in an interview. Bank of America collaborates with nearly 25,000 midsize businesses, which generate annual revenue of $5 million to $50 million. "As the gentle landing becomes a reality and there is greater clarity on the economy and future growth of the US, businesses will be able to make more investment decisions against a safer backdrop."
Hopes for a gentle landing — with the Federal Reserve curbing inflation through interest-rate hikes, while the economy avoids a recession — are increasing after encouraging signs that price increases may be under control. However, most business owners still see challenges ahead, including inflation, which prompts them to raise prices or reassess their cash flow and spending, according to the Bank of America survey results. About 75% of midsize-business owners cited inflation as a concern.
Bank of America is not alone in its belief that a severe recession could be avoided, as other financial firms report that consumers continue to spend their extra cash and have kept debt in check.
"Even if we enter a recession, they are entering with rather favorable conditions, low borrowings, and good house price value still," said JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon on an earnings conference call earlier this month.
However, he cautioned that headwinds are "substantial and somewhat unprecedented," including the war in Ukraine, oil and gas prices, and quantitative tightening. "We don't know if those factors could lead to a gentle landing, a mild recession, or a severe recession."
While current expectations are for a gentle landing for the global economy, the narrative has fluctuated throughout the year, said Alex Brazier, deputy head of BlackRock Inc.'s Investment Institute and a former member of the Financial Policy Committee at the Bank of England.
"A lot needs to go right for that, and the risks are in one direction, but it could continue for some time," he said in a Bloomberg Television interview on Tuesday.
Federal Reserve Chair Jerome Powell stated during a press conference on Wednesday afternoon that Fed staff members are now predicting a "noticeable slowdown in growth starting later this year," but are not expecting a more painful impact.
"Given the resilience of the economy recently, they are no longer forecasting a recession," he said.
Increased optimism about the economy should translate into business owners investing in expansion and hiring more employees, according to Bank of America's Anaya.
"When there is volatility in the economy and uncertainty arises, businesses tend to slow down future investments until they have a clear understanding of what lies ahead," he said.
(Updates with Powell's comments in 10th and 11th paragraphs.)