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The State Of The Economy Through 2020

Sep. 25, 2019 4:10 PM ET
John M. Mason profile picture
John M. Mason's Blog
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  • Right now, the US economy is presenting figures that anyone would like to have if they were running for re-election.
  • The economy in 2020 could be in its 12th year of expansion, the unemployment rate could be at a 50-year low, and the stock market could be near historic highs.
  • The problem from here on in is that any efforts to post even better results by the time of the 2020 election could backfire and end up reporting worse conditions.

If I were an incumbent president and was going to run for re-election, what kind of numbers on the economy would I like to go talking about in the upcoming event?

How about these numbers?

  1. The economy has grown through all four years of my first administration. Adding this is four years to the recovery that began before I became president, the US economy will be in its twelth year of expansion…a historical high.

  1. The unemployment rate is at a 51-year low.

  1. The stock market keeps hitting new historical highs.

  1. The US dollar is trading at a very strong level in foreign-exchange markets. On September 20, 2019 the Trade Weighted U. S. Dollar Index, Broad, was at 130.6, above the level it was at the time of the last presidential election on November 8, 2016 when the index was 122.6.

This would seem like a pretty good record to run upon. Why would you want to mess with other things that might upset this record?

In terms of the economy, the compound annual rate of growth over the twelve-year period of economic expansion will be around 2.2 percent.

This is not that spectacular by historical standards, but it is a continuous expansion and the growth rate exceeds that of most other advanced economies of the world.

It seems very possible that the US economy will continue to grow through 2020, without experiencing a recession.

Wow! Who would of ever thought this might happen.

Furthermore, there is some feeling that the current performance of the economy is fully captured by the figures on Gross Domestic Product. That is we might not be looking at all the right things to capture the real performance of the economy given the changes in technology that have taken place over the past fifty years.

This may be a factor contributing to the second point suggested above. The unemployment rate is remaining near a 50-year low. That is an amazing factor, given the slow rate at which the US economy is growing.

Is something happening that we are not recording? And, this low unemployment rate is happening while the labor force participation rate remains relatively low, although it seems to be increasing as we speak. Real wages also seem to be rising. All good signs.

In addition, the stock market continues to hit new historic highs, coming close to a new record this Wednesday, September 25m 2019. Here we have the S&P 500 Index closing at 2985, just 39 points below the historical high of 3026.

The NASDAQ index closed at 8077, just 29 points below tits historic high. And, the Dow Jones Industrial Index rest just 388 points below its historic high.

These are not bad figures at all, and could easily go on to new highs with one or two bits of good news, like a trade agreement between China and the United States.

Right now, the major question that is hanging over the stock market is about the future relationship between the monetary policy of the Federal Reserve and the level of the stock market.

As I have traced many times over the past decade, the Federal Reserve seems to have underwritten the rise in the stock market during most of the economic recovery. This was the original intention of former Fed Chair Ben Bernanke who set the central bank on the course to create a stock market “wealth effect” that would stimulate consumers to spend more and drive the economy into a recovery and sustain that recovery over time.

This policy approach worked very, very well.

Now, with indication that the Federal Reserve might be changing its policy focus, market participants are worried that the link between the Fed and the stock market that has been so prominent during the past ten years might fall away. That is the Fed might have other goals, such as the global economic situation, to dominate its policy decisions.

The strong dollar is another issue. Whereas there have been efforts to talk down the value of the dollar in recent years, the US dollar has remained strong. It seems as if participants in foreign exchange markets want a strong dollar and with the US economy growing at a pace that is relatively stronger that most other advanced economies, they have moved to support a strong US dollar.

Hence, in spite of efforts to produce a weak dollar, the opposite has happened, much to the benefit, I believe, of the United States…and the rest-of-the-world. A strong nation needs a strong currency.

Bottom line, going into a presidential election what more could I ask for in terms of these fundamental statistics? Yes, the economy could be growing faster, but it is growing, it is not going into a recession, and it is supporting a very low rate of unemployment.

Furthermore, the US stock market keeps hitting new highs and this, along with a strong dollar, makes the United States a “safe haven” for foreign money, a lot of which has come into the US over the past several years.

Is anything more needed?

Well, income/wealth inequality is quite high and a talking point in some circles.

But, with the major economic figures showing strength like I have just reported, my guess is that this inequality issue will not turn off many voters. Unfortunately, that will be an issue for another day.

The real question is about whether or not anything more needs to be added to the list of four presented above?

The problem is, people always seem to want more. But, trying to achieve more when you have so much may undo what you currently have. Too much of an effort to make the “good news” look better, might be destructive.

It seems to me, this is something that investors need to look out for in the upcoming months.

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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