JPMorgan releases new prediction for the US economy in 2026

Key Concepts

• Small Business Job Growth: Two-thirds of new job growth originates from small business owners.
• Trump Administration Policies: Policies like expensing and the 20% tax deduction are seen as pro-growth for small businesses.
• Tariff Impact: Tariffs, while intended for fair trade, initially created uncertainty but recent delays are providing relief.
• Inflation Stabilization: The Trump administration is credited with stabilizing inflation after a period of high inflation.
• AI Disruption: Artificial intelligence is expected to reshape the labor market, potentially displacing entry-level workers and requiring retraining initiatives.
• Soft Landing: The possibility of the Federal Reserve achieving a "soft landing" – controlling inflation without causing a recession – was discussed in relation to job market performance.

Labor Market Outlook for 2025-2026: A Focus on Small Business and Policy Impacts

Initial Assessment & J.P. Morgan Prediction

J.P. Morgan predicts a slow start to 2026, but anticipates improvement later in the year. The bank attributes the loss of job momentum in 2025 to uncertainty stemming from tariff plans and broader trade policies. However, a J.P. Morgan Chief Economist believes that supportive policies are emerging that will address the labor market slowdown and stimulate activity growth in the following year.

The Importance of Main Street

Alfredo Ortiz, CEO of the Jobs Creators Network, emphasized the critical role of small businesses in job creation. He stated, “When people ask me the question about the future of the economy I say look to Mainstreet not Wall Street,” highlighting that two-thirds of new job growth is generated by small business owners, despite larger employers having a greater overall employment footprint.

Pro-Growth Policies of the Trump Administration

Ortiz specifically cited the Trump administration’s policies as beneficial to small businesses. Key policies mentioned include:

• Expensing: Allowing businesses to immediately deduct the full cost of certain investments.
• Permanent 20% Tax Deduction: Providing a significant tax benefit to American business owners. These policies are seen as having a delayed impact, with many benefits expected to materialize in July 2024, leading to increased small business activity.

Job Market Performance in 2024 & Government Sector Losses

Tiana Lowe Doescher noted that despite fears of a recession, net job gains in 2024 were up half a million. Critically, the overwhelming majority of job losses occurred within the government sector, exceeding the combined losses of all other sectors. This suggests a potential “nadir” in job market laxity, with the possibility of improvement.

Tariffs and the Pursuit of Fair Trade

The discussion addressed the impact of tariffs, with the understanding that the Trump administration’s goal wasn’t necessarily free trade, but rather “fair trade” and the repatriation of investments to the United States. Approximately $10 trillion in commitments have been made to bring jobs back to the U.S. Recent delays in tariff increases on imported upholstered furniture, kitchen cabinets, and vanities – originally slated to double to 50% on cabinets and vanities and increase to 30% on upholstered furniture – were highlighted as pro-business policies. Small business owners in the kitchen cabinet and remodeling industries expressed relief at these delays, anticipating increased willingness to hire, build, and expand.

Inflation and Energy Costs

The Trump administration is credited with stabilizing inflation after a period of nearly 10% inflation under the Biden administration. Ortiz attributed this stabilization to energy cost savings championed by Trump from the outset of his administration. The J.P. Morgan predicted inflation did not materialize as forecasted.

The Disruptive Potential of Artificial Intelligence (AI)

The conversation turned to the potential impact of AI on the labor market. AI is expected to automate jobs in sectors like technology, manufacturing, and services, particularly affecting entry-level positions. Concerns were raised about the preparedness of Veterans Affairs (VA) and recent graduates for the changes brought about by AI.

Call for Retraining and Collaboration

A key recommendation was for high-tech companies to collaborate with the Department of Labor and the Small Business Administration to provide retraining programs for workers displaced by AI. The goal is to prepare these workers for the jobs created by the $10 trillion in investments being made in the U.S. economy. The importance of companies explaining AI implementation to workers and customers was also emphasized.

Logical Connections & Synthesis

The discussion flowed logically from an initial economic forecast to a detailed examination of the factors influencing job growth, particularly the role of small businesses and government policies. The conversation highlighted a cyclical pattern: policy implementation (like tax cuts and tariff adjustments) creates uncertainty initially, but ultimately fosters a more stable environment conducive to small business expansion and job creation. The emergence of AI as a disruptive force was presented as a challenge requiring proactive solutions, such as retraining initiatives, to ensure a smooth transition for the workforce.

The central takeaway is that the future of the U.S. labor market is heavily dependent on the continued support of small businesses, the effective implementation of pro-growth policies, and a proactive approach to mitigating the potential negative impacts of AI through workforce development and retraining.