We have to remember that one can’t make too much out of one month of data, but we’ve seen a couple of reports that make us wonder if the consumer’s knees are buckling a bit. For example, consumer spending in August rose by only .1% after a .5% reading in July and the fastest quarterly growth in 4.5 years during the 2nd quarter.
The last round of tariffs on Chines goods targeted consumer goods, and many analysts are speculating that they are causing the consumer to change their outlook. As we said earlier, it is too soon to make a solid conclusion that the consumer is hunkering down. We are only one month removed from the historic highs for consumer spending and sentiment, and the employment picture remains strong.
Randa Quarles, Fed Vice Chairman for supervision, thinks the US economy is “quite solid.” He acquiesces on business investment and trade, but sees good signs on the ground. Former Fed chair Janet Yellen, however, thinks the Fed is “too optimistic” about the US economy. Yellen cites three factors that, in her opinion, will hold back the US economy:
Demographics –population growth is slowing.
Education – gains are not as rapid as in the past.
Productivity – remains stubbornly low.
While certainly a learned opinion, Yellen points to long-term trends that are not necessarily an immediate concern for the current economic situation. The outlook isn’t rosy right now, but once again we don’t see a recession on the horizon, we expect 3rd Quarter GDP to come in around 2.0%. A representative from Goldman Sachs had this to say about the current economy and market situation, “This downturn in manufacturing has been one of the longest on record and may start to stabilize, if not improve, somewhat soon. Our economists remain of the view that growth has slowed but is not close to a recession… Assuming no recession, it is too early to expect this equity bull market to end in our view. While avoiding a recession should support risky assets, the upside is somewhat limited by the prospects for continued relatively modest profits growth.”
We recognize that the Fed Vice Chairman, former Fed Chair, and large investment bank economists don’t know the future. However, we value their opinions more than other economic commentators (news broadcasters, politician, political representatives etc.) The reason is, is that they have a better track history of being right, and have dedicated their professional lives to the study of economics and finance. We encourage R.O.I. clients to stay the course, continue to contribute to retirement accounts as planned, keep short-term buckets funded and maintain your current allocation, unless you have had a major change that would dictate an adjustment. As always, if you have concerns, please ask.