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The US Economy and the Economic Pie

According to a survey done by the Public Religion Research Institute, 72 percent of US survey respondents still think we’re in recession. While it might not feel like the economy has recovered based on what you see around you, as investors, we have to look at the bigger picture when talking about the economy.

Keep in mind, as the global population continues to grow, the “Economic Pie” will continue to grow. This is because there will be more people demanding more goods (i.e. houses, cars, food, technology, medicine, fuel, etc.) and creating an ever increasing demand for companies to supply those goods. This means that companies will continue to meet that ever increasing demand, hence their earnings have the opportunity to grow over time and the “pie gets bigger”.

As the “pie” gets bigger, investors will, over time, participate in that growth. It’s important to know, though, that it doesn’t necessarily mean that every single ingredient in the pie, or even every slice, has to get bigger or grow at exactly the same time.

As we think about how this impacts your investment outlook for 2015, our investment committee projects that the US  economy will slow from the torrid pace that closed out 2014, but not completely fall apart. Most likely it will be sufficient to keep corporate earnings and profits growing and the unemployment rate headed to below 5.5 percent.

Here are some indicators that the US economy will continue to fare well throughout 2015:

  • Lower energy prices = increased consumer spending
  • Lower energy prices = continued low inflation
  • Low inflation allows the Federal Reserve be patient about raising borrowing rates
  • Continued low rates are a tailwind for the economy, jobs, housing and the stock market

While the economy sometimes feels like it’s zigzagging and confusing, overall we’ve been seeing the pie grow. As this continues we will see continued prosperity in the US. Look for a solid 2015, but not a runaway train. That’s good news! Even if it’s sometimes hard to see.


 

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