Skip to Content

Economic Perspectives

Inflation. Employment. Monetary and fiscal policy. There are many factors which directly, or indirectly, affect the global economy. Plante Moran Financial Advisors’ Investment Research team provides a timely view of some of the complex factors that are shaping the current global economic landscape and influencing capital markets.

  • Should a weaker Q1 GDP report be a cause for concern?

    Since the 1990s, first quarter GDP growth has lagged growth in the subsequent three quarters by about 1.2%, on average. While the underlying cause is unclear, the consistency suggests a flaw in the Fed’s seasonal adjustment calculations that negatively – and consistently - distort Q1 results. As such, investors shouldn’t be surprised if the forthcoming Q1 estimate for GDP appears sluggish.

    More broadly, trend growth remains solid. The effects of the new tax legislation and expected increases in capital expenditures on the horizon should be supportive of GDP in the coming quarters, and incoming economic data paints an optimistic story for continued growth. As such, we don’t believe that a weak Q1 GDP report – if it occurs – should be a cause for alarm.

     Economic Perspectives Average GDP Growth

  • Are tariffs a risk to the global expansion?  

    The headline risk of a trade war was arguably the primary catalyst for equity market volatility in March. The Trump administration’s announcement of tariffs on up to $150 billion of imported Chinese goods led to a retaliatory announcement of tariffs hitting nearly 39% of total Chinese imports of American goods.

    It’s unclear what the impact of these announced actions will be, but we believe that it’s too early to conclude that they will ultimately represent the opening salvos of a more protracted, expansive conflict. It’s possible that these announcements are intended to create a starting point for broader negotiation between the U.S. and China to address a number of lingering concerns, most notably related to China’s widely acknowledged theft of corporate intellectual property.

    To this point, we don’t believe that these developments have fundamentally changed the outlook for the U.S. economy, which remains constructive. Nonetheless, the growing trade rift between the U.S. and China in particular is an additional risk to be monitored.

     Economic Perspectives Proposed Tariffs

  • A healthy job market – for how long?

    For the past eight years, the job market has strengthened considerably, and appears to be on strong footing today. By any number of measures, the labor market is as healthy as it has been in decades. The unemployment rate remains at a 17-year low (at 4.1%), weekly jobless claims recently dipped to their lowest level since 1973, and job openings are near an all-time high.

    Given these positive conditions today, it will be increasingly difficult for job creation to be maintained at its recent pace, but it should be sufficient to support continued economic expansion. Furthermore, wage growth is showing some signs of accelerating as the competition to attract and retain skilled workers is intensifying. With the rising demand and dwindling supply increasingly favoring workers, various measures of the consumer mood remain quite optimistic – ultimately supporting consumer spending growth and the broad economy.

     Economic Perspectives Labor Conditions 

    Chart Note: The labor market conditions index monitors 24 distinct labor market indicators. The index has an average value of zero, with positive values indicating stronger labor market conditions and negative results indicative of weaker conditions.
  • Has the era of easy money ended? 

    Starting in late 2017, the Fed announced that it would begin the process of shrinking its balance sheet (quantitative tightening). Coupled with its ongoing series of short-term rate increases, the Fed’s goal is to gradually normalize monetary policy. The process thus far has been gradual (and is expected to continue to be) and subject to a great deal of transparency in an attempt to avoid a negative capital market reaction.

    Globally, other central banks are not as far down the normalization path as the Fed. The European Central Bank is edging that direction, and the Bank of Japan is expected to gradually trim its bond purchases over the next few years. The bias toward reduction of global central bank balance sheets could push rates higher, leading to increased borrowing costs.

    Still, these decisions underscore the confidence that policymakers have in the global economy and directly address the need to normalize policy to reduce the risk of unwanted inflation or an overheating economy, and to create some “dry powder” for central banks to take action when the next economic downturn occurs.

     Economic Perspectives Global Banks Unwind 

    In response to the financial crisis, central banks across the world embarked on a securities purchasing plan that helped to stabilize markets over the past 9 years, and gave easy access to cheap capital. Starting in late 2017, the Fed began the process of shrinking its balance sheet with goal of normalizing its impact on markets. The process is expected to be gradual, and has been highly telegraphed thus far. Globally, other central banks are also nearing the end of their accommodative policies. While the reduction of the global central banks’ balance sheets could lead to higher borrowing costs, these decisions underscore the confidence that policymakers have in the global economy.

Interested in U.S. market activity during the last month? View our Market Perspectives.

Disclosures

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.