By: Russ Colbert
Summer 2018 (Vol. 36, No. 2)
During the past several months we have had a number of forecasters suggesting a recession looming in the year 2020.The good news is that the pundits of pessimism are not predicting it until 2020.It used to be every three or four months instead of two years out. Now we agree that a recession is coming someday. They are a fact of life, like death and taxes. But predicting one in 2020 is like reading a crystal ball and being right. No one can honestly see that far in the future. No one knows exactly what the Federal Reserve will do, not even the Fed that far out. Most recessions are caused by the Federal Reserve raising rates too high and choking off growth in the economy.
During the past year we have seen GDP growth accelerate at a very fast pace and expect it to be even higher next year. The Federal Reserve would have to raise rates faster and farther than any forecast we have seen in order to be tight going into 2020. There is also at least 1.9 trillion dollars in excess bank reserves. Until those bank reserves are eliminated, no one really knows if rising rates can actually cause a recession. Our primary concern is if the deficit keeps rising due to government spending causing pressure on politicians to raise taxes in the future. That could be a problem for U.S. growth. But, the most important thing is that the U.S. is not facing any near term economic problems. That’s why the pessimists have shifted to forecasting future recessions farther out.
The job reports have continued to look very good for some time. In the past thirty plus years watching the economy there has been recessions, recoveries, panics, big drops and booms. We have rarely seen job markets this robust. Most everything seems to be politicized or has politics associated with it. The main focus for investors should be how this economy is performing. It is growth that creates opportunities for workers to do better and move ahead. There are now 148 million workers working. This is more workers working than ever before.
Nonfarm payrolls are up very strong this year so far. Civilian employment is also very positive and is a measure for small business startups. The small business startups are showing very strong growth. The private sector is driving most of the growth. In the Manufacturing sector payrolls are also up big over the past year. It is the fastest twelve-month growth since 1998. No matter how you look at it, things look pretty good.
The unemployment rate has dropped below 4%. This is the lowest unemployment rate since 1969. We think it could go lower over the next few years. We have seen this fall for all workers across the country. This is causing a tight labor market and is pulling many people who have been out of work back into the labor market. We expect this to accelerate, pushing overall wages higher. As you can see things are looking good going forward for this year and into next year.
If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.
Senior Portfolio Manager
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.