Last month I attended an economic
forecast event and a few of the slides really caught my attention. As
business owners and advisors we are always looking forward, around corners, etc.
in an attempt to see what lies ahead in order to make sound, prudent business
decisions. The following slides both contain shaded areas denoting
periods of recession in the U.S. The first slide below is the Conference Board
Consumer Confidence Index. The index basically assesses consumers present
feelings about the economy as well as their outlook for business and employment
over the next 6 months; how they feel they will fare economically.
This next chart shows the actual unemployment
rate against the natural rate of unemployment. The natural rate of
unemployment is the premise that even when the economy is at full employment,
there is still a segment of the workforce who are unemployed. What the
chart indicates below is that the economy is so robust currently that
organizations are really tapping deep into the available pool of workers,
causing actual unemployment to dip below the natural rate. You can see
clearly in the chart that when this happens usually within a few years of going
below the natural rate a recession typically begins (again, the shaded areas). We've been below the
natural rate for a few years now, and by many measures this economic expansion
is long in the tooth. We've also heard that expansions don't die of old
age, it's generally some catalyst, often times monetary policy, that triggers a
recession.
This time could be different/unique.
Perhaps it already is. We have historically low interest rates that
generally cause capital to move into risk assets and foster business
investment. We have technology advances that contribute to greater
efficiency, productivity and profit margins. Our clients 2019 calendar
year results are rolling in with, in some cases, record level profits and in
most cases healthy profits. The business outlook for our clients is also
strong, looking ahead to 2021 as well. As always, remain vigilant,
capitalize on opportunities and use this strength in the economy to shore up
balance sheets. This balance sheet strength is always a welcome position
to be able to withstand the eventual slowdown that will come at some point.
