Commerce Trust economist predicts multi-year economic expansion

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Commerce Trust Co. chief economist Scott Colbert expects the country’s current economic expansion to last for years.

During a Wednesday luncheon at the White River Conference Center, Colbert, chief investment officer of Commerce Trust, shared his financial outlook for 2018 with more than 100 local investors.

Colbert said financial indicators show the current stock market expansion — the second-longest in U.S. history — could continue for another four years. Subsequently, Commerce Trust provided Colbert’s speaking notes to the Springfield Business Journal.

“Ironically, this recovery is the weakest ever in strength, but it has legs,” Colbert said during the presentation. “Unemployment continues to fall, wages are finally rising, and inflation is generally benign and close to the Federal Reserve’s target.”

Citing figures from Bloomberg, Colbert said the inverted curve indicating the timing of the next recession is 47 basis points below the 95 average. The economy has been in a recovery for 106 months, and Colbert estimates that this could go up to 144-153 months.

Citing figures from Bloomberg, Colbert said the inverted yield curve, which helps indicate the timing of the next recession, started falling a few years ago. The inverted curve is currently at 47 basis points, with an average spread of 95. During the recession, the inverted curve peaked at 280 basis points. The inverted curve shows that the economy has been in a recovery for 106 months, and Colbert estimates that could last up to 144-153 months.

Colbert said economic expansions end due to an “unforeseen economic shock” when the Fed raises rates to combat “late-cycle economic inflation,” which is triggered by higher wage growth , rising energy prices and “overzealous credit expansion”.

“We’re not there yet and we won’t be for a while,” he said.

Additional financial outlook from Colbert’s presentation:
• The national debt to gross domestic product peaked recently at 370% in 2008, and is currently at 329%, according to the Fed.
• A long-term driver of economic growth is the workforce. In 2004, the average worker was 40.3 years old and had 65.9% labor force participation. By 2024, the Bureau of Labor Statistics estimates that the average age of workers will be 42.4 with a participation rate of 60.9%.
• Average annual labor force growth from 2014 to 2024 is estimated at 0.4%, according to the Bureau of Labor Statistics, with real GDP growth projected at 2.2%.
• According to the Bureau of Economic Analysis and JP Morgan Chase & Co, the US household debt-to-income ratio fell from a recent high of 13.2% in the fourth quarter of 2007 to 10.3% in the first quarter of 2018.
• According to the same reports, household net worth rose from an average of around $55,000 in 2009 to almost $100,000 in the first quarter of this year. Total consumer assets have risen from a low of $69 trillion in the first quarter of 2009 to the current level of $114.4 trillion;
• Colbert said employment is stable, with the BLS reporting a jump of 10 million jobs since January 2008 and growth hovering around 2%.

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