Right Where it Belongs By: Gabriel PotterMBA, AIFA® 2020.02.11

Finally, the estimates for a 4th quarter GDP came out last week.  The current official estimate is a 4Q GDP rate of 2.1%.  Add it to the rest of the year, and you get an annualized US GDP of 2.3% in 2019.  While that may be disappointing to an administration hoping for sustained GDP over 3%, that goal was probably never realistic.  Rather, the Congressional Budget Office, The Federal Reserve, independent economists, and the consensus view of Wall Street firms for the past decade have had a pretty consistent message:  expect GDP to hover in the 2% to 2.5% range.

There are actions the administration and central bank can take to adjust facets of the market and economy.  For instance, the revamped tax-code can change the calculus on stock valuations, directing more towards owners, bolstering optimistic valuations, at the long-term cost of ever-expanding fiscal deficits.  Also, the Federal Reserve can offset investment weakness with accommodative policy, pushing money into risk-on assets, while punishing bond purchasers and reducing the ability to Fed’s ability to counteract a genuine crisis.  but fighting the long-term inputs on GDP calculations – productivity and the size of the labor force – is like fighting gravity.  It didn’t matter who was in the White House or how the stock market did from day-to-day.  The real-world economy is independently chugging along, unaffected by most of the ideas and proposals which are too small to have a discernible impact.

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

More about Gabriel Potter
Sign up for our Newsletter
Sign up for our Newsletter