J.P. Morgan economists flagged an unusual divergence in the U.S. economy: strong capital expenditure alongside weakening job growth. In their report, The Odd Decouple, they noted that mid-year resilience suggests the trade war shock has been limited so far, yet tariff drag is still building.
The result is what they call an “odd decouple,” with business investment surging even as hiring slows — a juxtaposition they described as unprecedented in more than 60 years of U.S. economic history. “It is important to highlight the unprecedented juxtaposition of a sharp acceleration in spending alongside a material softening in job growth,” they wrote.
This split presents a two-sided risk. On the upside, artificial intelligence adoption is boosting productivity and offsetting labor market weakness. On the downside, persistent business caution could narrow the tech lift while tariff effects amplify real income pressures. JPMorgan stressed that such competing narratives make the current cycle more complex than past trade-war slowdowns.
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Interesting points from JPM. As for potential market impacts:
Equities: The divergence muddies the near-term outlook. Strong capex and AI-driven productivity may support tech and capital goods stocks, but weak hiring raises consumer-spending risks that could cap broad equity gains.Business caution and real-income weakness highlight downside risks for consumer credit and discretionary sectors
Fixed interest: The Fed will likely see the split as complicating policy. Investment strength argues against aggressive easing, while a softer labor market leans the other way — adding volatility around data releases.
The US dollar impact is two-sided. Capex resilience supports the greenback, but slowing job growth and tariff drag could weigh if investors price in more Fed cuts.
