Market Minute - November 15, 2019
by Scott Rosenquist, CFA
October’s employment data came in better than expected showing that the US economy continues to plow ahead. The previous two months were also revised higher and the labor force participation rate increased. All of this points to a growing economy and keeps recession risk low for the time being. What do the numbers mean for the economy going forward?
The chart below from JPMorgan’s Guide to the Markets shows the long-term drivers of economic growth on the left-hand side including labor force growth (top chart) and investment spending (bottom chart). The right side shows GDP growth as a function of the two in real terms (inflation adjusted).
Source: J.P. Morgan Asset Management; (Top left) Census Bureau, DOD, DOJ; (Top left and right) BLS; (Right and bottom left) BEA.
GDP drivers are calculated as the average annualized growth in the 10 years ending in 4Q18. Future working-age population is calculated as the total estimated number of Americans from the Census Bureau, per the September 2018 report, controlled for military enrollment, growth in institutionalized population and demographic trends. Growth in working-age population does not include illegal immigration; DOD Troop Readiness reports used to estimate percent of population enlisted. Numbers may not sum due to rounding.
Guide to the Markets – U.S. Data are as of October 31, 2019.
The growth in the working age population has been decreasing due to aging demographics and tighter immigration restrictions. The current labor market is tight with low unemployment. For the economy to continue to grow over the long-term, the U.S. will need more workers. Private investment by companies has been weak this year as trade uncertainties make corporations hesitant to invest. A turn in either of these would be a positive for the U.S. economy.
This economic data points to slowing but not stalling growth going into next year. The Federal Reserve has estimated 2.0% GDP growth for 2020. Investors should adjust their expectations accordingly as we proceed into next year.
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