Market Summary & Metrics - February 2019
Heartland Advisors chief executive, Will Nasgovitz, expressed concerns over the torrent of corporate debt coming due in the next few years. “With interest rates low, the economy strong and relatively easy lending standards, the thinking went that borrowing to buy-back shares or finance acquisitions was a low-risk strategy,” Nasgovitz explained in a post. “But the next five years could severely test that Pollyanna view.” Nasgovitz, who oversees about $1.3 billion in assets, wrote that the expiration of some $3.3 trillion — roughly half of all current outstanding commercial debt — “would be challenging for the market to digest in the best of scenarios, let alone this late in an economic expansion … let alone as lending standards have begun to tighten for commercial and industrial borrowers.”
In the wake of the Fed’s pause on interest rate hikes, Reuters concluded that at the onset of each of the last four recessions, the effective federal funds rate had peaked and was already falling by the time the business cycle turned down. “Peaking interest rates have often been a harbinger of an imminent recession as the Fed responds to signs that the expansion is running out of momentum,” according to the news wire. “In every one of those cases, even interest rate reductions were not enough to prevent the economy turning down a few months later.”
Last year’s fourth-quarter growth slowed to an annual growth rate of 2.6% but beat the consensus 2.4% estimate despite the impact of the federal government shut down and hostile weather. On an annualized basis, the 2018 economy performed the best it has since 2005 growing GDP by 3.1%. Outlooks for the economy cleaved between economists and consumers. Half the nation’s business economists said they think the U.S. economy will slip into recession by the end of next year, according to the Associated Press, and three-fourths anticipate such a downturn beginning by the end of 2021. However, a survey by the National Association for Business Economics showed that only 10% of its members said they foresee a recession beginning this year while only 11% expect the economy to avoid a recession through 2021.
The unemployment rate has increased slightly to 4% from a 49-year low of 3.7% late last year, according to MarketWatch, however the increase is for all the right reasons. More Americans are entering the labor force in search of work with job openings at an all-time high. Further, incomes and wages are growing at the fastest pace since the end of the 2007-2009 recession.
Braun-Bostich & Associates, Inc.