Economic Outlook

Source: Bloomberg, FactSet, 5/31/2019.

Economic expansions don’t die of old age. They’re usually snuffed out when a bubble bursts or the Federal Reserve raises short-term interest rates too much, but we don’t see either on the horizon. At more than 120 months, this expansion is now the longest in U.S. history. The Fed intends to help it continue, supporting our outlook for modest economic growth ahead. And if the economy slows back near its 2.3% expansion average this year as we expect, it’s not likely to overheat, further extending its life expectancy.

Solid job growth continues –The unemployment rate has dropped near a 50-year low, well below its trough in previous expansions, signaling we are later in the economic cycle. Although 2019 job growth has slowed to around 170,000 per month, it continues to provide a solid foundation for the ongoing expansion. The chart also shows wage growth has been rising steadily but remains below past cycle peaks. Low-paid workers have been receiving the biggest pay raises recently and their rising spending supports our outlook. And still-modest overall wage growth suggests that wage-related inflation pressures aren’t likely to become a near-term concern.

Consumers power the expansion forward – We expect consumer spending to continue to power this long-running expansion, rebounding from first quarter’s pause. Consumers remain optimistic, and job growth has been solid. This year’s decline in long-term interest rates has already prompted a wave of mortgage refinancing and can continue to support slower but still-growing housing and vehicle sales. Although business confidence and manufacturing are suffering from higher tariffs and faltering global growth, the impact on overall U.S. growth has been small. Unless additional tariffs are imposed, we think manufacturing prospects are likely to improve over the next year.

Action for investors

We believe equities will continue to benefit from ongoing U.S. economic growth, which is slowing but remains near its average pace over this 10-year expansion. Aging expansions and bull markets can include more volatility, and long-term returns may be lower than recent results. Make sure your expectations are realistic and you’re prepared with an appropriately diversified portfolio.

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