The Recovery Continues and There's Hope By Lewis J. Walker, CFP(R)

A Trumpian rant is that China and Mexico have stolen all of our jobs. Not true! Manufacturing in the U.S. is on the uptick and that’s good news for our recovery.

On Monday, May 2, 2016, about 90 financial advisors and planners from Atlanta-based Strategic Financial Alliance gathered in Scottsdale, AZ, for a series of meetings on the economy and trends. A keynote address by Dr. Alan Beaulieu, president of ITR Economics, Manchester, NH, offered a theme: The Recovery Continues and There’s Hope. Dr. Beaulieu is one of America’s most informed economists with a “spot on” forecasting record. He consults with companies worldwide on how to increase profits based on trends. He does not offer stock market forecasts but to the extent that economic developments drive investor actions, he is worth paying attention to.

Investors are influenced by what “has happened” and current headlines. Prognosticators like Beaulieu look at trend lines to consider what is likely to happen moving forward. ITR’s one big miss in 2015 was the extent of the decline in oil prices, which was based more on global politics than economics.

As to politics, Dr. Beaulieu opines that it does not matter in the short run who is elected president. The new president will take office in January, 2107, and it will be 2018 before any action could have impact on the economy. Currently the economy looks good.

The Institute for Supply Management (ISM) Manufacturing Index, after declining since early 2015, began moving up in early 2016. In March and April the closely watched index moved above 50, indicating expansion. The dollar has weakened by 4.7% against a basket of currencies and that has helped exporters. (Barron’s, 5/9/16).

Investors worry about China. Dr. Beaulieu notes that America is 70% larger than China when it comes to GDP. Currently the cost of manufacturing in the U. S. is only about 5% more than China and Mexico. A 2/8/15 report from CNBC indicated “‘Made in China’ increasingly is ‘Made in USA.’” Chinese direct foreign investment in the U.S. totaled $12 billion in 2014, topping $10 billion for the 2nd year in a row. Quality control is important to China’s growing affluent middle class and America has an edge. Products made here for U.S. consumption take advantage of shorter supply lines and shipping costs, as well as compliance with differing regulatory standards.

American manufacturing is 10% of U.S. employment, down from almost 40% in the post-WW II 1940’s and roughly 25% in the 1970’s. Yet, as Steven Russolillo, The Wall Street Journal, 5/2/16, noted, these numbers don’t include truck drivers and others connected to manufacturing for some or all of their livelihood (lawyers, accountants, ad agencies, consultants, real estate professionals and investors, etc.).

Wages are rising, indicating a shortage of the skilled workers needed by employers. Those with low skills and minimal education will continue to struggle. Consumer spending is on the uptick, boosting retail sales. At the same time people are saving at a 4.2% rate. That’s a good sign but not enough to build a sustainable retirement!

Robotics will see increased use, further reducing labor content, again dour news for those with marginal skills. But someone has to know how to program and repair robots!

Dr. Beaulieu sees defense spending moving up. Barron’s noted that Congress “passed a massive budget in December, boosting spending by $66 billion this year, while cutting taxes by $650 billion over 10 years.” The budget includes $1.4 billion for military construction. Fiscal policy may trump monetary policy which seems to have lost its edge.

ITR gurus indicate that leading indicators show rising trend lines through August. We are not seeing use of the word “robust” when it comes to growth. While our economy grew at an anemic 0.5% in the first quarter, Atlanta’s Federal Reserve Bank sees growth at 1.7% in the 2nd quarter. At least that’s an improvement!

My final impression from Alan Beaulieu’s talk is that as an investor, the trends are your friends. The bull may be walking slowly, but at least the direction for now is upward over time, even with short run stumbles. Relax and regard political ranting as entertainment or just noise!

Lewis Walker is a financial planning and investment strategist at Capital Insight Group; 770-441-2603. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Capital Insight Group.