• Doug Lagerstrom

Market Outlook | Summer 2016

What will our economy look like in the wake of Brexit and the Presidential election season? Well, the economy doesn’t look particularly good or bad. I guess it all depends on your perspective.

On the positive side, consumer prices (as measured by CPI) remain low, unemployment is low (4.7%), and consumer confidence (98 in June up from 92 in May) is high. At the same time, economic growth is low (2.1%), US debt is large ($19 trillion), and the labor participation rate is the lowest since 1978 (62.7%).


These mixed signals have made the difficult job of our central bankers more challenging as they decide whether or not our economy can handle higher interest rates. In fact, recently the Fed warned the market that they may raise rates as many as four times in 2016.


After Brexit, the odds of any rate hikes this year have diminished. The futures market now believes the odds of a rate decrease is greater than a hike at their next meeting in July. Expect to hear arguments about how well the economy is doing from Democrats who want to see Hillary Clinton elected as President. At the same time expect to hear arguments about how bad things are from the Republican nominee Donald Trump.


The truth is, of course, somewhere in between. In my opinion our economy is currently the best house in a bad neighborhood. While there is certainly much to fret about, our economic engine is the healthiest in the world. The remedy for our biggest economic problems (slow growth, debt, labor participation), unfortunately lies with fiscal policy. According to political polls, most voters don’t like our odds when our economic future is tied to leadership from Hillary Clinton or Donald Trump.


Stranger things have happened and if it’s one thing the history of our country has taught us it is that the US economy is resilient and can survive anything thrown at it… so far.


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