Report: J.P. Morgan Private Bank expects mild economic headwinds locally in 2023
By Eman Elshahawy – Digital Producer, South Florida Business Journal
Dec 23, 2022
As macroeconomic concerns continue to mount in preparation for the new year, Miami leaders of J.P. Morgan Private Bank, a division of JPMorgan Chase & Co. (NYSE: JPM), discussed South Florida-specific insights based on its national 2023 economic outlook report.
Some of the region's most important sectors – real estate, technology, hospitality and finance – are starting to feel the effects of the Federal Reserve's interest rate hikes.
Among the areas most affected by these hikes are property mortgages for residential and commercial real estate developers, local investor and entrepreneur funding opportunities for startups, luxury shops and restaurants that draw tourists from across the globe, and asset management for business owners and wealthy individuals and families from Latin America.
The bottom line? Growth will be stagnant or slowed in order to yield a stronger market. This growth minimization process, often referred to as a "soft landing," will occur to mitigate a likely recession and stabilize the consumer price index, the proxy for inflation.
J.P. Morgan Private Bank's Miami market manager and managing director, Amanda Murphy, and managing director and head of investments, Alonso Garza, provided an economic overview for South Florida's top industries going into 2023, and what business owners can expect.
Sales and leasing will slow down for both the residential and commercial markets compared to previous years. However, the mass relocation of people and companies to South Florida will be bullish compared to other U.S. metro markets.
"There's plenty of folks with cash reserves or savings from the last few years, and they're using all cash if they need to – particularly here in the Miami area," Garza said. "Now, that said, the Fed knows this – which is why it is a process of consistent rate hikes for these properties until it eventually comes to an end."
And while we reported that the number local home sales dropped more than 33% in November, the number of high-income business owners moving their businesses here continues to grow and could account for the activity of individuals who are paying cash for properties.
The effort that local founders and venture capitalists put in to launch innovative startups and establish the region as a tech hub has the potential to push through national economic hurdles.
"The tech industry here is always looking for funding, and I think Miami has that great mesh of both those founders and those funders," Murphy said. "And one of the things we spend a lot of time doing is supporting clients who have an interest in making those types of investments."
She said the Miami tech scene has a wide foundation of support from investors who dedicate large percentages of their portfolio to local companies. So, as the rest of the nation anticipates stunted exits and lower equity profits, Miami's funding activity may not take as much of a hit.
Tourism is one of the largest drivers of South Florida's gross domestic product. That's why the in-migration of wealthy individuals from the Northeast give the region's luxury shops and high-end restaurants an advantage over the rest of the U.S.
"While consumers are eating into their savings, they're coming off of very high savings from the pandemic," Garza said.
And while the Fed rate hikes do affect the spending decisions of consumers, he said South Florida tells a different story.
Murphy explained how the tri-county area now has one of its strongest consumer balance sheets ever. Because of this, she believes local consumer spending may not slow down as much as other regions.
Consumer price index data supports this as inflation in the region has consistently surpassed the U.S. national average throughout 2022, meaning people in the area have the capital to keep up with the high cost of retail and dining.
Banking and financial services
As data shows, in times of economic uncertainty, demand will generally increase for financial services such as accounting and money management.
That's because business owners and other high-income individuals will look for ways to maintain viable earnings in preparation for lower quarterly revenue. We saw this in 2020, as the economic headwinds brought on by the pandemic increased annual billings for South Florida accounting firms, according to our 2021 list of accounting firms by billings.
"Our clients are business owners, and they're concerned about what consumer spending for their products or services will look like next year," Murphy said. "We advise these clients every day on what their personal balance sheet will look like based on fixed income."
Murphy currently leads a team of 90 advisers and support staff, but she expects that number to double over the next five years – an indication of heightened long-term demand for financial services.