Thank you to all clients who were able to attend our CJM Wealth Advisers Economic Update and Outlook event on April 26 with the nationally acclaimed “bowtie economist,” Dr. Elliot Eisenberg. For those unable to attend, below is a summary of the event’s main highlights as well as a link to the full presentation.
The lively presentation was full of humor and the agenda covered U.S. Gross Domestic Product (GDP), interest rates, inflation, changing population demographics and the housing market, among others. Dr. Eisenberg did a fantastic job translating these key themes currently driving the U.S. and global economic landscape into digestible, entertaining, informational “nuggets”.
Dr. Eisenberg struck an overall positive tone in his economic messaging, stating “the economy in 2018. . .is probably better than in 2017.” Households have continued to bolster personal balance sheets after the Great Recession of 2008, and American wealth is at an all-time high. Although personal net worth levels have reached record levels, a subsequent increase in consumer spending (approximately 70% of the U.S. economy) has not followed suit due to increased saving rates and a fundamental demographic shift towards an aging U.S. population. For the younger population, elevated student loan debt levels have pushed out major life events such as a first-time home purchase and marriage. Overall, student debt levels have risen to $13.15 trillion in the fourth quarter of 2017, up from $12.96 trillion in the third quarter of the same year.
Household and Nonprofit Organization Net Worth Level:
Source: Board of Governors of the Federal Reserve System
Small business confidence is strong as measured by the Small Business Optimism Index, which Dr. Eisenberg attributes this to the “fundamentally altered” regulatory environment for small business, a focus of the new Administration. This has served as a strong tailwind for this part of the economy. Another surprising economic indicator used by Dr. Eisenberg was activity in Las Vegas as measured by both number of visitors and corporate convention attendance, both of which have been trending up.
Las Vegas Visitors and Corporate Activity:
Source: Dr. Elliot Eisenberg, Graphs & Laughs
After-tax corporate profits are also on the rise. Companies have used excess cash to buy back stock and invest in both plant and equipment for their respective business. Although this will certainly help boost the economy in the short run, it is important to note many of the benefits from the tax cut will expire in 2019.
Dr. Eisenberg was also positive on the changing energy complex in the United States. As a result of being less energy-reliant and exporting more U.S. energy, rising energy prices that once pulled down parts of the U.S. economy have shifted and are now somewhat welcomed in parts of the country that have high rig counts, such as Texas. On the employment side, the labor market is strong with only three states and Washington, D.C. posting unemployment rates above 5%.
As previously noted, Dr. Eisenberg was generally positive on the economy. He believes there is limited opportunity for a recession in the next 12 to 18 months and he remains cautious on a few key economic variables that merit watching in the coming years. The tax cut will have positive short-term benefits (estimated to increase GDP by 40 basis points), but will also increase the U.S. budget deficit and consequently the debt-to-GDP ratio over the next five years. Weak population growth and labor productivity in the United States as well as a greater wealth disparity—or gap between income levels – could potentially detract from economic growth prospects.
We encourage you to listen to the replay of the full presentation, available here http://cjmltd.com/cjm-2018-economic-update/ to get Dr. Eisenberg’s complete economic update, as well as a few laughs. It is important to note there can be a dichotomy between the performance of the economy and the stock and bond markets as it relates to your portfolio. We encourage you to remain diversified and committed to your long-term strategy to achieve your financial goals.