American Money: Six Reasons for a Rosy 2020
By David Lee Smith, Ph.D
It’s hardly news that we’ve all just walked through a figurative door separating the past year—2019—from the one in which we now are ensconced, obviously 2020. Depending on your perspective, the past year was either tremendously successful or simply wild and wooly.
So, is Ocasio-Cortez accurate about tepid wage growth? And if so, what are the dynamics at work there?
From the perspective of the equities markets, it’s hard to label 2019 as anything but extremely positive. After all, the Dow Jones Industrial Average tacked on 22.3% in returns during the year. But there are those who obviously are unimpressed by that result. In fact, the seemingly omnipresent market seer and eminent economist Alexandria Ocasio-Cortez recently tweeted that those strong results occurred amidst wage growth that was at best just passable. As she said, “The Dow soars, wages don’t. Inequality in a nutshell.”
She’d likely make the same observations about the S&P 500 Index, which returned a satisfying 28.9% last year, and the NASDAQ Composite, the bearer of a whopping 35.2% in returns for its believers.
Is AOC’s conclusion correct?
So, is Ocasio-Cortez accurate about tepid wage growth? And if so, what are the dynamics at work there? For starters, you know only too well that there exists a relationship between job expansion and wage growth. However, it may not be quite as hard and fast an association as many might believe. Vis-à-vis job additions, 2019 ended with an average monthly increase of 172,000, down from 223,000 monthly in the prior year (the first full year of the Trump administration), but up meaningfully from the 109,000 average monthly growth during the eight years under President Barack Obama. Unemployment during the final months of the year dipped to just 3.5%, the lowest level in a half-century and, by most economists’ reckoning, tantamount to full employment.
The U.S. economy is heading into 2020 at a pace of steady, sustained growth after a series of interest rate cuts and the apparent resolution of two trade-related threats mostly eliminated the risk of a recession.
Those who continue to scratch their heads about less-than-exciting wage growth, which slowly increased from 3.1% in 2018 to 3.2% in 2019 (and is currently forecast to hit about 3.3% this year) may point to trade issues as a damper on business confidence and consequently on wage expansion. But that may very well change during 2020, given several accomplishments that occurred as 2019 neared its conclusion and continued this month.
Six reasons to welcome 2020
Given the relative economic strengthening that occurred last year, my colleague George Parks recently observed that, “As we head into 2020, most indicators point toward more of the same.” Indeed, even the Washington Post would concur with George’s optimism. In fact, not long ago, the paper began an article with, “The U.S. economy is heading into 2020 at a pace of steady, sustained growth, after a series of interest rate cuts and the apparent resolution of two trade-related threats mostly eliminated the risk of a recession.”
Now, in the interest of (your) time and (our) space, let’s quickly wrap up by enumerating six reasons adding confidence to our forecast of a rosy glow in 2020.
- Chinese tariffs reduced – The U.S.-China trade deal has seen its phase one agreed to. It’ll result in a trimming of U.S. tariffs on Chinese imports from 15% to 7.5% on $120 billion, among other items. But given China’s history, whether the deal will hold is anyone’s guess.
- Canada/Mexico trade deal completed – So that it wouldn’t emerge empty-handed regarding accomplishments for 2019, the House of Representatives in December passed President Trump’s trade deal with Canada and Mexico. The Senate followed suit this month, and with the president’s signature soon to be added, the upgrade of NAFTA will be completed.
- UK trade deal probable – Assuming Brexit finally is concluded, as expected on January 31, Trump and Britain’s Boris Johnson almost certainly will carve out a trade agreement that will benefit both of their countries, and possibly others as well.
- Global economic improvement possible – An ever-stronger U.S. economy and the emergence of the significant trade agreements could result in at least something of a global economic strengthening beginning this year.
- Impeachment a non-factor – The markets have treated impeachment as a nonevent. That’s unlikely to change, especially with the Senate now in the driver’s seat.
- Iranian threat lessening – Iran may have become somewhat chastened following the results of its latest series of misadventures.
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There are numerous other considerations that we could point to as we attempt to peek ahead at what 2020 holds for us. And we clearly haven’t mentioned the impending quadrennial election. As George says, “Markets can be volatile during election years, with most of the gains coming after the election.” Nevertheless, as he also points out, “Stocks still appear to be a better value than fixed income alternatives and are likely to remain so until interest rates move closer to their mean.”
There you have it. In a far less than perfect world there are all manner of reasons to be positive about things financial and economic in 2020.
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