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Economic forecast 2016: the tortoise or the hare?

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We all know of Aesop’s fable The Tortoise and the Hare—a story of two unequal opponents who agree to a race. The outcome appears to be obvious, but in a surprising twist, the ever-so-diligent tortoise perseveres and wins the race. The moral of the story is: slow and steady wins the race.

UMB’s economic theme for 2016 is The Tortoise OR the Hare. We think the U.S. economy, which has grown throughout the past few years at a tortoise-like pace, will continue to produce mediocre growth in 2016. Given the stimuli that abounds, one might think the economy should grow at a faster pace, more “hare-like;” however, we think slow and steady will win out once again. We anticipate the U.S. economy will continue to grow in the 2 percent to 2.2 percent range in 2016. Relative to other economies, tortoise-like growth will be a winner.

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hareThe hare
Historically the U.S. economy has been more hare-like. So what has changed? When did our economy go from consistently growing more than 3 percent annually to a tortoise-like economy with growth less than 2.5 percent? For example, from 1955 to 2005, the U.S. average real Gross Domestic Product (GDP) was 3.4 percent. Fast-forward to the period from 2005 to 2015 and real GDP averaged a paltry 1.5 percent, leaving economists wondering what happened.

To answer this question, we investigated two economic variables that drive potential GDP: labor force growth and productivity gains.

two economic variables that drive potential GDP: labor force growth and productivity gainsData Source: Bureau of Economic Analysis

Labor force growth
In economics, potential output refers to the highest level of real GDP (output) that can be sustained over the long term. Year-to-year actual GDP may vary from potential GDP; this is called the output gap. Forecasting potential GDP should be relatively easy, as the formula is simply labor force growth plus productivity gains.
low labor force growth + low productivity gains

2016 forecast GDP

Labor force growth has changed throughout the years and is influenced by several factors. In the 1960s and 1970s labor force growth changed due to population growth, the baby boomer generation reached working age and more women were working outside the home and entering the labor force. However, the significant labor force growth rate increase of the 70s will not be repeated anytime soon. One reason is that most baby boomers have more siblings than children, and labor force growth is partly a function of population growth.

Productivity
The second variable is productivity, or the efficiency of production. According to the Bureau of Labor Statistics, productivity change in the non-farm business sector from 2007-2014 was only 1.3 percent.

Debate among economists: What drives productivity?

  • Capital accumulation or…
  • accelerating technical progress in high-tech industries plus the resulting investment in information technology

One common theme between both theories is that investment is critical to any growth theory. Therefore monitoring measures of human capital and research and development expenditures is necessary. We believe we will continue to see exciting new technologies developed in the future, but caution that even though new technology is introduced, the lack of adoption to these new technologies can be limiting to productivity. Therefore, we don’t see productivity gains spiking higher in the near future.

tortoiseThe tortoise
So as the fable goes, the tortoise never gives up—it is patient and persistent, and wins the race. This is a great parallel to the U.S. economy in 2016 and perhaps beyond. Our economy has been slow-growing since the Great Recession in 2009 and has continued on that path to real GDP of 1.5 percent in 2013, 2.4 percent in 2014 and near 2.4 percent last year.

I expect our economy to continue to grow at a slow and steady pace in 2016 with real GDP in the range of 2 percent to 2.2 percent. This is in part due to several tailwinds and a few headwinds.

 

GDP economic growth

Tailwinds
The labor market, consumer confidence and low interest rates are a few of the positive variables that support our expectation for steady, ongoing economic expansion.

The robust labor market gives us confidence that the U.S. economy will continue to grow at a steady pace. By the end of 2015, the number of full-time workers rose to a record high of 122.6 million. The Federal Reserve Chairperson, Janet Yellen, suggested in her recent testimony that payroll growth of 100,000 per month can absorb all of the new entrants into the labor market.

Additional data supports a solid labor market. The median duration for the unemployed fell to 10.5 weeks, the lowest in seven years. Finding part-time workers is becoming more difficult, and as the job market improves, we think more people will be encouraged to consider seeking employment. As the labor market tightens, wages will be on the rise as well.

unemployment

Data Source: Bureau of Labor Statistics

This dovetails into consumer confidence. When consumers feel good, they will support the economy by spending. Consumer confidence was relatively flat throughout 2015, but remains at a level that supports economic growth. Confidence is primarily driven by the labor market, stock prices and home prices.

The strength in the aforementioned labor market, paired with home prices up 5.5 percent last year, should continue to support confidence. Lower oil prices also gave most consumers a good feeling as their transportation costs were reduced. The wild card here is the stock market. Investors saw mediocre returns last year, (only 1.4 percent return from the S&P 500), along with higher volatility. Weak markets and an increase in volatility may shake consumer confidence this year.

The Fed has kept interest rates low for seven years. We think interest rates will be on the rise throughout 2016, ending the year at 1 percent. However, from a historical perspective, the Fed policy remains extremely expansionary, affording consumers and businesses access to inexpensive capital.

Perhaps China is getting a bad rap; it seems to be blamed for any problem ranging from stock market volatility to global warming. However from our point of view, it’s not all bad. The U.S. imports more goods from China than from any other country. As China devaluates its currency, the yuan, those everyday goods we import become cheaper, which is good for consumers. As their economy slows to a more sustainable level, the demand for energy and commodities wanes and prices are reduced. Again, this is good for the U.S. consumer.

8

Data source: U.S. Census Bureau

Not everything outside of the U.S. is necessarily a negative story, as some would lead consumers to believe. With low interest rates and a quantitative easing program, Europe could experience economic growth in the 1.5 percent to 2.0 percent range. This may not sound like much, but remember in 2014 they grew at a 0.8 percent pace and last year at 1.5 percent.

Headwinds
It’s not all rosy. Some headwinds lead to slower growth and some may not have a significant impact on our economy directly, but rather they may spook risk markets. Stocks are included in this category.

The recent U.S. manufacturing data is suggesting an oncoming economic contraction. For two quarters now, the ISM Purchasing Managers Index has been below 50, indicating a contraction. The good news is that non-manufacturing data is solidly in growth territory, albeit trending south. The bad news–historically the manufacturing data leads the non-manufacturing data. Once again, we think the current data supports a tortoise-like economy in the United States.

The Fed has a tough job: maximize employment, stabilize prices, support global markets, normalize interest rates. Oh, and don’t send us into a recession. Many recessions have been blamed on the Fed for creating a policy error, which is typically viewed as moving too fast or too soon. At this time we don’t see a policy error at hand. The Fed plans to move at a measured pace and it doesn’t look like it will threaten a tortoise-like expansion.

Issues in the global economy will constrain growth in the United States, and as we mentioned, China is slowing. It will have an impact on other emerging markets as well as on the United States to a lesser extent. We don’t believe the Chinese stock market gives us any indication of economic fundamentals due to the speculation in their markets and government intervention. However the massive volatility of their stock markets sends a violent reaction to markets around the globe. If downward pressure continues, it could negatively impact consumer confidence in the United States.

Energy is also an important variable. Even though low energy prices are good for the consumer’s wallet; tension in the Middle East may create an uneasy global economy. And while much of this won’t significantly affect the U.S. economy, it may affect our markets in the short run.

A slow and steady 2016
In 2016 we anticipate GDP growth between 2 percent and 2.2 percent. We think this will be supported by the labor market once again as businesses create new jobs.

Domestic equity returns may once again be challenged, profits are in question and valuations may contract. We expect 3 percent earnings growth which should lead to total returns in the 4 percent to 6 percent range.

We also think interest rates will be on the move this year, expecting both short-term and long-term rates to increase. Fed Funds should end the year at 1 percent.

The moral to our economic story is slow and steady won’t be all bad on a relative basis. Our economy expanding at an approximate 2.1 percent pace will allow the Fed to normalize interest rates and companies will find a way to be profitable and continue to hire workers, supporting consumption.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

UMB Investment Management is a division within UMB Bank, n.a. that manages active portfolios for employee benefit plans, endowments and foundations, fiduciary accounts and individuals. UMB Financial Services, Inc.*  is a subsidiary of UMB Financial Corporation. UMB Financial Services, Inc is not a bank and is separate from UMB Bank, n.a.

This content is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. Statements in this report are based on the opinions of UMB Investment Management and the information available at the time this report was published.

All opinions represent our judgments as of the date of this report and are subject to change at any time without notice. You should not use this report as a substitute for your own judgment, and you should consult professional advisors before making any tax, legal, financial planning or investment decisions. This report contains no investment recommendations and you should not interpret the statements in this report as investment, tax, legal, or financial planning advice. UMB Investment Management obtained information used in this report from third-party sources it believes to be reliable, but this information is not necessarily comprehensive and UMB Investment Management does not guarantee that it is accurate.

All investments involve risk, including the possible loss of principal. Past performance is no guarantee of future results. Neither UMB Investment Management nor its affiliates, directors, officers, employees or agents accepts any liability for any loss or damage arising out of your use of all or any part of this report.

“UMB” – Reg. U.S. Pat. & Tm. Off. Copyright © 2016. UMB Financial Corporation. All Rights Reserved.

Securities offered through UMB Financial Services, Inc. Member FINRA, SIPC or the Investment Banking Division of UMB Bank, n.a.

*Insurance products offered through UMB Insurance Inc.

You may not have an account with all of these entities.

Contact your UMB Representative if you have any questions.

* Securities and Insurance products are:

Not FDIC Insured  ▪  No Bank Guarantee  ▪  Not a Deposit  ▪  Not Insured by any Government Agency  ▪  May Lose Value

 

 


K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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2015 economic forecast: ready for liftoff

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After several years of slow-growing momentum in the U.S. economy, we have deemed 2015 the year of economic “lift-off.”

Lift-off is a term the Federal Reserve (Fed) typically uses to reference a transition from lower rates to a rising rate environment. For our forecast this year, however, this term can actually be applied broadly to the entire U.S. economy, signaling that meaningful improvement has arrived and will likely continue. So what will fuel this economic lift-off, and are there any variables to consider that may cause us to reconsider whether or not the economy is truly ready for launch?

Check out KC’s interview with The Street to see a short summary of his predictions. For the full story, keep reading.

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Where we’ve been

reverse-liftoff

The United States has been stuck in a below potential, moderately-growing economy since 2009. Most recently, we saw 2.2 percent real or inflation-adjusted GDP growth in 2013 – followed by a small improvement to 2.4 percent growth last year. So it shouldn’t come as a surprise that we anticipate additional improvement in 2015; but will this be a low-altitude lift-off near 2.7 percent or something more powerful, closer to 3.1 percent growth?
economic growth

Fuel

The economy is fueled by many factors, but there are a few that carry more weight than others. If you are familiar with UMB, you’ll note that we are driven by what the data tells us, not by what people say; the goal being to understand the difference between the signal and the noise.

This year we think the primary driver of growth will be the consumer.  We think there will be three key variables to watch that should drive consumption and economic activity.
fuel

Jobs are one of the most telling and powerful variables in the economic formula. Most of the time, though, headline unemployment is the only data indicator used in reporting. We don’t think the value of that indicator is very significant. We prefer to hone in on actual job creation or payroll growth because it tells more of the story. The country has seen marked improvement in average monthly payroll growth since 2011, and with that, GDP has correlated nicely. In 2013, approximately 194,000 jobs were created per month (GDP at 2.2 percent); in 2014, the number was 246,000 (GDP at 2.4 percent) and we anticipate the labor market will stabilize or improve slightly, increasing to somewhere around 250,000 per month in 2015. Historically speaking, when the United States creates 3 million jobs a year, the economy grows faster than 3 percent.
unemployment

One of our favorite signals to forecast payroll growth is availability of credit. Businesses need to know credit is available prior to expanding and hiring workers.  Payroll growth and the willingness of banks to lend are highly correlated by as much as 85 percent.  Today banks are open for business and lending standards are accommodative.
unemployment

Consumer confidence has been improving and we think will continue to improve due to the labor market, stock and home prices, and of course lower energy costs. As we stated, the employment landscape is in excellent condition and on an upward trajectory. This adds to the formula for upward movement, along with a stock market that is up more than 200 percent over the last five years, home prices are up 30 percent over the last three years.  As I have said before, when consumers feel good, they consume. This certainly seems to be the case.
confidence

Credit makes the world go ’round, and banks and credit are the lifeblood of the economy. Unfortunately over the past few years, millions of Americans were cut off from credit but today will once again have access to credit. From 2006 – 2009 nearly 5 million Americans, roughly the population of metropolitan Atlanta, defaulted on their mortgages. When you default on a loan, you are cut off from credit. Fast forward seven years after a default and that blemish has been expunged from your credit record, thus giving millions of Americans access to credit once again. With that, demand for bank loans has improved significantly. In 2007 loan demand was growing just shy of 10 percent, then dried up during the Great Recession, and resurfaced to nearly 8.0 percent in 2014. In other words, consumers and businesses are willing to borrow and consume yet again.

Houston we have a problem…or do we? 

All indicators are telling us that things look positive, but as with any mission, we must explore possible hazards that could cause a ‘failure to launch.’ Let’s hone in on a few key variables:

Employment – Yes jobs have been created, but job quality has been in question for a few years. Now, though, we can see improvements. The national quit rate is on the rise, which tells us that employees are finding better paying employment.
employmentHousing – Household formation data typically follows the economic cycle. When economic conditions are favorable, young people can find jobs. They move out of their parents’ homes and create their own household, increase consumption and create housing demand.  Unfortunately, employment among the millennial generation (age 15-35) is incredibly low, indicating that many of them are unable to move out and create a household. Perhaps a more relevant group would be millennials aged 25-35, revealing that approximately 25 percent of them are not working, due to either unemployment or remaining in school. However, we feel confident that as the economy improves, this generation will have an easier time securing work, creating households of their own and thereby creating housing demand.  Housing has not made a significant contribution to GDP over the last several years. This year we think housing starts will reach 1.2 million and add close to 0.50 percent to real GDP, which will be material.
housingGeopolitical – The U.S. economy operates on a global scale and we always have to be mindful of the geopolitical risks that exist. Most recently, we’ve had to a take a close look at potential action coming from the European Central Bank, as Europe has been on the brink of a recession for some time now. In addition, Russia has been put in a difficult situation with the price of oil down nearly 50 percent. Russia has a losing hand as a country where 68 percent of its exports come from oil and gas. While this proves problematic for some countries overseas, non-oil producing countries, such as Europe and Asia, will have a boost of stimulus through lower oil prices. Overall, we mark this as a risk, but not particularly threatening to our forecast in the United States since consumers will have an estimated additional $100 -$150 million of disposable income.
geopoliticalPolicy Mistake – As previously mentioned, a Fed liftoff will occur when it begins to raise overnight rates up from the zero rate that’s been in place for several years.  This could be called a “policy mistake” if the Fed were to begin pushing rates up before the economy is healthy enough to handle higher borrowing rates.  We think that this is a very remote possibility, as inflation is still quite low and the Fed has little incentive to move rates up early or in a dramatic fashion.  In fact, the interest rate liftoff that we think will begin later in the year will actually be good news, because it will signal that the central bank sees a US economy that is healthy enough to withstand more normalized rates.  We think the Fed will move in a rational, measured manner that will not threaten the economic expansion.
policy mistakeCleared for Lift-Off – Through careful consideration of what factors are fueling our economy and what could pose a risk to launch, we believe the U.S. economy is officially ready for lift-off.
cleared for lift-off

Here’s what we anticipate for this year:

  • GDP growth between 2.7 percent and 3.1 percent, supported by a robust labor market as businesses create new jobs
  • Nearly 250,000 jobs created on average per month; this will drive unemployment down to 5.5 percent and many discouraged workers will return to the work force
  • Another good year in domestic equities
  • Corporate America will see 4.0 percent revenue growth and 6.0 percent earnings growth, which should lead to 10 percent total returns in the equity market
  • Interest rates will be on the move this year, expecting both short-term and long-term rates to increase

In all, the above data and research proves that the economy is certainly prepared for a lift-off. Whether we will see GDP near 2.7 percent or slightly more significant at 3.1 percent, the year ahead is looking brighter than we have seen for quite some time.
When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

 

UMB Investment Management is a division within UMB Bank, n.a. that manages active portfolios for employee benefit plans, endowments and foundations, fiduciary accounts and individuals. UMB Financial Services, Inc.*  is a wholly owned subsidiary of UMB Bank, n.a. UMB Bank, n.a., is an affiliate within the UMB Financial Corporation.

This content is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. Statements in this report are based on the opinions of UMB Investment Management and the information available at the time this report was published.

All opinions represent our judgments as of the date of this report and are subject to change at any time without notice. You should not use this report as a substitute for your own judgment, and you should consult professional advisors before making any tax, legal, financial planning or investment decisions. This report contains no investment recommendations and you should not interpret the statements in this report as investment, tax, legal, or financial planning advice. UMB Investment Management obtained information used in this report from third-party sources it believes to be reliable, but this information is not necessarily comprehensive and UMB Investment Management does not guarantee that it is accurate.

All investments involve risk, including the possible loss of principal. Past performance is no guarantee of future results. Neither UMB Investment Management nor its affiliates, directors, officers, employees or agents accepts any liability for any loss or damage arising out of your use of all or any part of this report.

“UMB” – Reg. U.S. Pat. & Tm. Off. Copyright © 2015. UMB Financial Corporation. All Rights Reserved.

Securities offered through UMB Financial Services, Inc. Member FINRA, SIPC or the Investment Banking Division of UMB Bank, n.a.

*Insurance products offered through UMB Insurance Inc.

You may not have an account with all of these entities.

Contact your UMB Representative if you have any questions.

Securities and Insurance products are:

Not FDIC Insured  *  No Bank Guarantee  *  Not a Deposit  *  Not Insured by any Government Agency  *  May Lose Value

 

 


K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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What’s happening with oil? (part II)

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Our Chief Investment Officer continues to answer questions about oil prices, today focusing on the impact on the consumer, corporate earnings and macro economy. Take a look at yesterday’s video if you missed it.

 

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K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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What’s happening with oil? (part I)

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Our Chief Investment Officer answers your questions about oil prices:

  • How low will oil prices go and for how long
  • What does it mean for the consumer?
  • What does it mean to corporate earnings and financial markets
  • Can we see attractive returns in the equity markets without the contribution of the energy sector?

Check back tomorrow for part II!

 

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K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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More holiday sales = economic growth (Part II)

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Our Chief Investment Officer reports on the outcome of his predictions made before Black Friday.

See below for more…

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Before Thanksgiving, we suggested that today’s consumers are financially healthier than in past years, which, we think, will drive a robust holiday spending season.

Some of the numbers reported appeared to be a bit Grinch-like. The National Retail Federation reported that Thanksgiving weekend sales were down 11 percent and online sales posted negative growth as well.

Our research at UMB leads us to a more cheerful conclusion, for two primary reasons.

  • Black Friday appears to be losing its reserve. You may recall that in the past retailers competed with one another to be the first store to open on Friday morning. Then they began opening the stores on Thanksgiving. Fast forward to today, when many retailers have promotional items on display prior to the holiday. Perhaps Black Friday has become Black November, meaning that the window of shopping days to be analyzed has become longer than just one weekend.
  • Several online retailers announced robust sales gains. We believe online sales are growing nearly 30 percent this season. We think this is due to the adoption of mobile technology. Since online retailers are open 24/7, so is the option to shop. We are also seeing a shift from brick and mortar stores to online retailers and we expect this trend to continue.

The retail sales data, along with other recently released economic data, supports our forecast of greater than 3 percent GDP growth in the fourth quarter, giving us nice momentum into 2015.

In Part I of this report, we anticipated material job growth this holiday season. The non-farm payroll growth in November proved that to be accurate with a gain of 321,000 jobs, again, supporting GDP growth of well over 3 percent.

Clearly the labor market is strengthening. Unemployment stands at 5.8 percent, and we think it will continue to head lower throughout 2015. Job openings are at a level we haven’t seen since 2001.

The labor market, along with higher stock and home prices and lower energy costs, has boosted consumer confidence. So it was no surprise to us that the University of Michigan’s Consumer Confidence Index has risen to a seven-year high.

Lastly, manufacturing data in the United States is hovering around a three-year high, also supporting our GDP forecast.

The bottom line is that all signs are leading us to believe that consumption will continue at a healthy pace. Since consumption is almost 70 percent of GDP, we think economic growth in 2015 will be between 3 to 3.5 percent; significantly higher than what we have seen throughout the last five years.

Given our optimistic economic outlook, we expect to see favorable returns in the stock market. In 2015 we expect 4 percent revenue growth and 6 percent earnings growth — that should lead to 10 percent total returns.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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More holiday sales = economic growth

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Black Friday is only 10 days away! Will you brave the mall? As you stand in the long lines, we’ll give you some tidbits to think about with how your purchases play a part in boosting the economy this holiday season.

See below for more…

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This year retailers are expecting much more than a lump of coal. Major retailers and shipping companies are expecting holiday sales to increase more than 4 percent. We haven’t seen 4 percent growth since 2011. Throughout the last decade, holiday sales have averaged 2.9 percent growth.

Many retailers have already announced significant hiring plans to meet the demand—so seasonal workers may be up as much as 10 percent from last year. A couple of primary shipping companies are even doubling their holiday workforce largely due to demand coming from e-commerce.
1So while you can see that most of the economic data in the United States supports a rather jolly shopping season, we can’t ignore some risks that could shake consumer confidence. A correction in the stock market, or signs of a recession in Europe are events that would in – fact, affect this forecast.

However, we strongly believe that consumers are in better financial health for a number of reasons:

  • Household net worth is at an all time high. This is due to higher stock and home prices.
    2
  • The labor market is solid. Unemployment is less than 6 percent and job growth has been increasing at a nice pace. These employment gains should continue as there are 4.8 million job openings, a level we haven’t seen since 2001.
  • You are probably noticing lower prices at the pump as well. That translates to more disposable income in consumer’s pockets.
    3
  • And finally, consumer confidence has been trending up since the Great Recession. And when we feel good about things, we consume.

There are even more factors that point to a better holiday season than last year:

  • Last year the government shutdown in the fourth quarter may have shaken consumer confidence and affected spending – we aren’t facing that situation this year.
  • Unseasonably cold and stormy weather led to some store closings across the nation.
    4
  • Lastly, in 2013 there were six fewer shopping days between Thanksgiving and Christmas compared to 2012. This year there is one additional day, which makes year over year comparable sale easier to beat.

We think this holiday shopping season will support our forecast of 3 percent economic growth in the fourth quarter.  We also expect to see positive returns in the domestic stock markets.

I wish all of you a happy and healthy holiday season. I’ll be back to deliver part two of this forecast after Thanksgiving.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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Hometown Perspective: Kansas

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You know you can count on us to provide insights into national and global economic outlook, but what about the business outlook where you live? Gil Trout, Chairman & CEO of Kansas and Oklahoma, gives us some perspective on how Kansas is looking this year. Hint: it’s good news.

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Mr. Trout joined UMB in 1988. As Regional CEO for Kansas and Oklahoma, he is responsible for the profitability, leadership development and commercial banking oversight of his regions. Mr. Trout has over 25 years of experience in the financial industry. He earned his MBA from Avila University, and his Executive Leadership Certificate from Washington University.



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The Calm after the Storm? Or the Eye of the Storm?

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Recently UMB Bank Chief Investment Officer KC Mathews and his team connected with clients to discuss some of the market’s most pressing issues. The Fed tapering, our interest rate forecast, the recent movements in the municipal bond market and an updated economic outlook were discussed.

Interested in what was discussed? Listen to the podcast here.

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UMB Investment Management is a division within UMB Bank, n.a. that manages active portfolios for employee benefit plans, endowments and foundations, fiduciary accounts and individuals. UMB Financial Services, Inc.*  is a wholly owned subsidiary of UMB Bank, n.a. UMB Bank, n.a., is an affiliate within the UMB Financial Corporation.

This content is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. Statements in this report are based on the opinions of UMB Investment Management and the information available at the time this report was published.

All opinions represent our judgments as of the date of this report and are subject to change at any time without notice. You should not use this report as a substitute for your own judgment, and you should consult professional advisors before making any tax, legal, financial planning or investment decisions. This report contains no investment recommendations and you should not interpret the statements in this report as investment, tax, legal, or financial planning advice. UMB Investment Management obtained information used in this report from third-party sources it believes to be reliable, but this information is not necessarily comprehensive and UMB Investment Management does not guarantee that it is accurate.

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K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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