Are You Ready for . . . the Coming Economic Boom?

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Mar 11, 2016 2:37:23 PM

and tagged Commentary

Leave a comment

economic boomOne way to think about what’s next is to consider what no one is really talking about. We have heard so much about recessions, global economic collapse, the oil market, and so forth that you could be forgiven for believing the world is coming to an end.

That’s not the case, of course. At least here in the U.S., things have been getting consistently better, at an accelerating rate. But is anyone taking that seriously? Given current conditions, it’s not unreasonable to consider that an economic boom could be on the way.

Jobs situation may foreshadow boom times ahead             

For the past year or so, I’ve described the job market as “not a boom, but you can see one from here.” And, indeed, with unemployment down, job growth strong, and even wage growth better than it looks (see this great paper from the San Francisco Fed), a jobs boom may be getting closer and closer.

As the job market improves, we can also start to make out a general boom on the horizon. Crazy? Maybe so, but it’s looking less so every month.

Consider the following facts:

Consumer income and spending growth are up. As wage growth starts to accelerate and saving stabilizes, spending growth will drive the economy even faster than it has. Faster spending growth will also lead to better expectations, more spending, and even faster hiring, creating a positive feedback loop.

Oil prices are rising. As the energy market normalizes, investment and hiring should move back into positive territory. We don’t need strong growth here, just an end to the bleeding—and that appears to be happening. At the same time, in another positive feedback loop, gas prices will remain low enough to keep stimulating consumer spending growth.

The dollar is stabilizing. U.S. companies have suffered from a rapidly appreciating dollar. As with oil, we don’t need the dollar to drop, just to stop appreciating—and again, we are getting precisely that.

China and Europe haven’t collapsed. Although the current central bank stimulus programs in those areas are reaching their limits, they should still have a positive effect over the next year or two, which will help both global and U.S. growth. Given the recent weakness and fear, any improvements—and we are already seeing them—will have a disproportionate effect on sentiment.

In previous post-crisis periods, we often saw multiple hits to the economy, leading to the feeling that a recovery would never come. Remember the Asian financial crisis in 1998, followed by the dot-com bust and September 11? Each hit held the recovery back and damaged sentiment even more.

But a strong recovery, even a boom, did eventually come, and the worse things looked, the stronger the eventual bounce back was. The fact that we haven’t seen one yet doesn’t mean it isn’t on its way. Many of the passing economic headwinds may be setting us up for just that outcome, no matter how unlikely it seems at the moment.

So what would this boom look like?

Probably another couple of years of strong growth, with rising consumer confidence and spending. And possibly a couple of strong years for the stock market. At some point, of course, we will face a downturn, but maybe not for some time yet.

Will this boom happen? Who knows, but it’s a real possibility, and—since no one is really talking about it—may represent real opportunity for investors. When planning for downside risks, don’t forget to consider the possibility of upside risks as well.

  Subscribe to the Independent Market Observer

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®