Springfield, MO

Log in Subscribe

Opinion: Expect an economic expansion to continue

Posted online

There are countless benefits to living and working in the Ozarks. One of the most notable, from a financial markets perspective, is our diverse and well-rounded economy, grounded in the stability of our fine health care and education systems. Fortunately, we can count similar blessings on a national scale, as the U.S. economic expansion continues, notwithstanding its late-cycle status.

Despite ongoing cross currents and headwinds, related to a unique set of global factors, the U.S. economy is on solid footing. As it stands, growth has continued along the moderate 2% path that it has followed for the past 10 years. Although this recovery is arguably considered the weakest on record, it also takes the title of longest domestic business cycle expansion ever witnessed. With no obvious excesses or systemic problems in view, this cycle has the potential to continue. In 2020, barring any exogenous shocks, we expect the U.S. economy to grow at a 2.3% annual rate.

The 2020 global economy is likewise expected to show improvement, in the low 3% range, as recent developments on the international front have provided meaningful support. After many months of gridlock, the United States and China agreed to the details of a “phase one” deal, which will reduce tariffs and help calm fears of an escalating trade war. Our expectation is that this truce holds and that phase one is signed within the very near term. Brexit, too, is now a step closer to resolution. December’s resounding mandate from the British electorate should make the United Kingdom’s exit from the European Union much easier for Prime Minister Boris Johnson.

U.S. job growth is tapering, as one would expect late in the economic cycle, but is still generally solid enough to propel the economy forward with increasing wages and healthy household balance sheets. According to the U.S. Bureau of Labor Statistics’ December report, the United States added 145,000 nonfarm jobs for the month (falling short of market expectations of 164,000), and the unemployment rate remained unchanged at 3.5%. Average hourly earnings growth remained stable with a year-over-year increase of 2.9%.

After three cuts to its targeted overnight rate during 2019, the Federal Reserve has signaled it will remain on the sidelines well into 2020, albeit continue its data-dependent stance. This easing has led to a modest steepening of the yield curve, all but eliminating the inversion across maturities. Accommodative measures from most of the world’s central banks followed suit, creating exceptionally low, even negative, rates globally, which we expect to persist throughout 2020 due to continued benign inflation. While lessened trade tensions and better foreign growth could lead to a modest pickup in core inflation in the near term, we still feel expectations appear to be well anchored and within range of the Fed’s 2% objective.

One positive side effect of 2019’s declining interest rates and shrinking credit spreads (the yield premium investors receive for investing in riskier bonds) was the best-returning bond market in nearly a decade. Emerging markets bonds were the top performer for 2019, followed by the corporate investment grade and high-yield sectors. The Barclays Aggregate Bond Index posted a nearly 9% return for the 2019 calendar year.

2019 was also a terrific year for equity investors around the world, both in spite of and because of the precipitous drop in stock prices witnessed in the fourth quarter of 2018. Unfortunately, the gains were achieved with limited growth in earnings, which leaves little room for further multiple expansion. As slowing global growth coming from China, Europe and other major economies likely begins to reverse, we anticipate strengthening economies to generate higher corporate earnings by 6%-8% on a year-over-year basis, which will be essential to extend market price gains as we enter 2020.

We acknowledge the possibility for continued market volatility is very real. Stay tuned, as trade negotiations could deteriorate or more failed attempts at a Brexit deal could continue. Geopolitical flare-ups, and a presidential election amidst a toxic U.S. political environment, could certainly contribute to financial market uncertainty as well. For now, however, the U.S. economic expansion seems quite ready to head further into record territory.

Drew Spencer is a vice president and portfolio manager for Commerce Trust Co. in Springfield. He can be reached at


No comments on this story |
Please log in to add your comment
Editors' Pick
Coronavirus Coverage

SBJ compiles news on the respiratory virus outbreak.

Most Read Poll
How soon do you plan to return to your employer’s office?

View results