Forget the Background Noise — The Economy is the Big Story
Author: Greg Valliere
December 2, 2019
WHAT A BUZZ-KILL YESTERDAY after a quiet Thanksgiving weekend — the Sunday talk shows breathlessly addressed impeachment proceedings (which are destined to fail) and the Iowa caucuses (which are still two months away). But there was hardly a peep about the big second half surprise: the U.S. economy has avoided recession and appears to be growing moderately again.
A TIP-OFF COMES FROM THE ATLANTA FED, which has dramatically revised its fourth quarter economic forecast, from 0.4% just a couple of weeks ago to 1.7% now. Other private forecasters are now close to 2% growth for this quarter; many cite the likelihood of continued solid consumer spending and signs that the manufacturing sector’s slump may have bottomed.
UPCOMING ECONOMIC DATA this week will provide important clues. This morning’s November ISM manufacturing index is expected to rise to about 49.5, up from October’s 48.3 level. And on Friday, the unemployment rate for November is expected to stay steady at about 3.6%, with solid nonfarm payrolls, perhaps a little over 180,000 new jobs, with decent wage growth.
WE CONTINUE TO BELIEVE that the biggest economic story of the year is the failure of anything close to recession to materialize, as the modest GDP recovery enters its second decade. In May and June, all the talk was about the inverted yield curve — what ever happened to that? — which was supposed to spark a recession and a grave threat to Donald Trump’s re-election. Actually, the economy is still his strongest asset.
THE ECONOMY COULD BE EVEN STRONGER if there was some clarity on trade; unfortunately, we think time is running out to finalize any deals this year. We wouldn’t be surprised to see a House vote to approve the U.S.-Mexico-Canada deal, perhaps as early as this week or next, but Senate ratification may have to wait until next year.
THE MORE IMPORTANT TRADE DEAL, of course, would be with China but progress is glacial. A dust-up between the U.S. and China over Hong Kong rattled the markets late last week, but that won’t necessarily derail a deal. We still think there could be an agreement in principle before the Dec. 15 deadline for new tariffs, but details of a deal may take many weeks to iron out. A Phase Two treaty, which would address the really big issues, is nowhere in sight.
THIS RAISES THE SECOND MOST IMPORTANT economic development in 2019 — the U.S. financial markets have learned to live with the tariff war. It’s a source of anxiety for farmers and small businesses, but last time we checked, the S&P 500 Index was up by an astonishing 25% this year.
DECEMBER IS AN HISTORICALLY STRONG MONTH for the stock market, so what better time to see economic Goldilocks prevailing once again? It’s quite a stew: low inflation, a great jobs market, modest economic growth, and remarkably low interest rates. And as a bonus, still another bullish signal: retail investors we talk with are nervous; many of them worry about the dysfunction in Washington, but it’s just background noise.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2022 AGF Management Limited. All rights reserved.