Avalon produces a variety of investment commentaries.
Our perspectives and quarterly commentary are issued throughout the year and cover a range of investment-related topics.
The U.S. economy showed further signs of strength in November. Employment and manufacturing indicators showed resilience to the hurricane headwinds with some evidence of a slight acceleration beginning to emerge. The Bureau of Economic Analysis revised third quarter GDP growth to an annualized 3.3%, and there are few signs of an imminent slowdown. The New York and Atlanta Federal Reserve Banks are currently estimating 3.9% and 3.5% respectively. Both of those are extraordinary growth rates for this long into an economic expansion, and this pace should be maintained into 2018.
Can this pace of growth be maintained for longer? Probably not. In economics, it is critical to distinguish between the longer-run, structural aspects of an economy and the shorter-run cyclical elements. This U.S. growth surge is cyclical, and even tax reform does not alter the structural.
The structural state of the U.S. and global economy is not particularly uplifting. It is difficult to argue that the long run growth of the U.S. economy is not slowing down. The boomers do not happen every generation, women joining the labor force are a one-off boom to the US growth rate as is life expectancy doubling in a century. Some economists argue this means the U.S. -- and the global economy -- are heading for slower growth, and this is probably correct. There are a few things that could delay or even ward it off, but they do not appear imminent. After all, one of the things that could accelerate the structural growth rate of the economy is innovation, and the internet already happened.
Source: Bloomberg
Combine this with the structural U.S. government deficits, and you have a recipe for much weaker U.S. growth, but not necessarily in the near-term. This is where the cyclical interacts with the structural. In other words, just because long-term growth might be relatively slow, does not mean the near-term must be.
With tax reform passing, there is a good chance that the U.S. growth picks up. Even if this growth is only on the margin, the resultant inflation acceleration could spur the Fed to raise rates modestly quicker than anticipated. The cyclical aspects may have some interesting consequences.
The chart is from Robert Gordon's "Is U.S. economic growth over? Faltering innovation confronts the six.”
Source:
“Is the U.S. economic growth over? Faltering innovation confronts the six.”
“The six” refers to the six headwinds he points out will slow global growth in coming years. Gordon’s work is a sober reading of global growth in the future. How slow does Gordon see U.S. growth going overtime? The chart assumes that growth gradually slows to 0.2% by 2100 from the 20th Century's 2% pace. This does not look so bad in chart form. Though, it would feel exceedingly slow.
In the near-term, the cyclical aspects should win out. For the U.S., this is a moment to savor. Growth at this pace is not in line with the structural capabilities of the U.S. economy. Thanks to tax reform, the US has a respite from its longer-term reality.
Sam Rines
srines@avalonadvisors.com
Avalon Perspectives
Avalon Weekly Market Guide
October 14, 2019
Avalon Weekly Market Guide
October 7, 2019
Avalon Weekly Market Guide
September 30, 2019
Avalon Weekly Market Guide
September 23, 2019
Avalon Weekly Market Guide
September 9, 2019
Avalon Weekly Market Guide
September 3, 2019
Avalon Weekly Market Guide
August 26, 2019
Avalon Weekly Market Guide
August 19, 2019
Avalon Weekly Market Guide
August 12, 2019
Avalon Market Update
August 9, 2019
Avalon Weekly Market Guide
August 5, 2019
Avalon Weekly Market Guide
July 29 2019
Avalon Weekly Market Guide
July 22 2019
Avalon Weekly Market Guide
July 15 2019
Avalon Weekly Market Guide
July 8, 2019
Avalon Weekly Market Guide
July 1, 2019
Avalon Weekly Market Guide
June 24, 2019
Avalon Weekly Market Guide
June 17, 2019
Avalon Weekly Market Guide
June 10, 2019
Avalon Weekly Market Guide
June 3, 2019
Avalon Weekly Market Guide
May 28, 2019
Avalon Weekly Market Guide
May 20, 2019
Avalon Weekly Market Guide
May 13, 2019
Avalon Report from Berkshire
Hathaway Annual Meeting
May 6, 2019
Avalon Weekly Market Guide
May 6, 2019
Avalon Weekly Market Guide
April 29, 2019
Avalon Weekly Market Guide
April 22, 2019
Avalon Weekly Market Guide
April 15, 2019
Avalon Weekly Market Guide
April 8, 2019
Avalon Weekly Market Guide
April 1, 2019
Avalon Weekly Market Guide
March 25, 2019
Avalon Weekly Market Guide
March 18, 2019
Avalon Weekly Market Guide
March 11, 2019
Avalon Weekly Market Guide
March 4, 2019
Avalon Weekly Market Guide
February 25, 2019
Avalon Weekly Market Guide
February 19, 2019
Avalon Weekly Market Guide
February 11, 2019
Avalon Weekly Market Guide
February 4, 2019
Avalon Weekly Market Guide
January 28, 2019
Avalon Weekly Market Guide
January 22, 2019
Avalon Weekly Market Guide
January 14, 2019
Avalon Weekly Market Guide
January 7, 2019
Avalon Weekly Market Guide
December 31, 2018
Avalon Weekly Market Guide
December 24, 2018
The Federal Reserve Raises Rates
December 18, 2018
Avalon Weekly Market Guide
December 17, 2018
Avalon Weekly Market Guide
December 10, 2018
Avalon Weekly Market Guide
December 3, 2018
Fed Chairman Powell's November 2018 Speech
November 28, 2018
Avalon Weekly Market Guide
November 26, 2018
Avalon Market Update
October 12, 2018
Yield Curve and Equity Returns
April 26, 2018
Low-Balling Inflation Puts the Fed at Risk
September 28, 2017
TPP Is Dead. What Now?
January 25, 2017
Quarterly and Monthly Notes
Quarterly Note
Third Quarter, 2019
Quarterly Note
Second Quarter, 2019
Quarterly Note
First Quarter, 2019
Yearly Outlook
2019
Quarterly Note
Third Quarter, 2018
Quarterly Note
Second Quarter, 2018
Monthly Note
May 2018
Monthly Note
April 2018
Quarterly Note
First Quarter, 2018
Monthly Note
February 2018
Yearly Outlook
2018
Monthly Note
November 2017
Quarterly Note
Third Quarter, 2017
Monthly Note
August 2017
Monthly Note
July 2017
Quarterly Note
Second Quarter, 2017
Monthly Note
May 2017
Monthly Note
April 2017
Quarterly Note
First Quarter, 2017
Monthly Note
February 2017
Monthly Note
January 2017
News | Press
Avalon Advisors, LLC Announces new Co-Chief Investment Officer
October 2, 2018
Avalon Advisors, LLC Named to 2018 Financial Times 300 Top Registered Investment Advisers
June 28, 2018
Avalon Advisors Announces San Antonio Expansion
December 21, 2016
2929 Allen Parkway, Suite 3000, Houston, TX 77019 | 713.238.2050
755 E Mulberry Avenue, Suite 105, San Antonio, TX 78212 | 210.694.4329
©2019 Avalon Investment & Advisory | All Rights Reserved