Key indicators of economic expansion and contraction
KC Mathews, chief investment officer at UMB Bank, recently visited the TD Ameritrade Network to discuss the health of the U.S. economy and important data points that show whether expansion is poised to continue or on the brink of slowing down.
Forecasting the future of the U.S. economy is undoubtedly a difficult task, even for the most seasoned financial professional. But there are key indicators of economic expansion and contraction that are generally telltale signs of whether an economic expansion will continue, or if a contraction is on the way. One of these signs is capital expenditure spending, and another is the Federal Reserve’s approach to the Fed Funds rate.
Known as “CapEx,” these are funds a business uses to buy, maintain or upgrade physical assets such as land, buildings or equipment. Generally, a company increases CapEx spending when profits are increasing. When businesses are spending more money in the CapEx department, it’s a sign that they’re confident regarding economic activity and anticipating more growth.
Since the Great Recession, CapEx spending has lagged significantly behind other spending such as share repurchases, mergers and acquisitions and dividends payments. But in the past year, CapEx spending has picked up more than these other areas. The fact that businesses are spending their profits on CapEx is a signal that our current economic expansion is likely to continue, as business confidence and profit projections remain high.
Fed Funds Rate
Over the past two years, the Federal Reserve has been gradually increasing the Fed Funds rate, and some are becoming concerned that higher interest rates will put a damper on continued economic growth. However, the Fed is getting to raise rates – it’s not having to do so because of inflation or an overheated economy. This slow and steady approach to Fed Funds rate increases shows confidence in the economy and is another positive indicator that expansion will continue.
Watch the full TD Ameritrade Network clip‡ to learn more about key indicators of economic expansion and contraction as well as additional thoughts on market activity and asset allocation in this current economic environment.
To stay informed of the latest market trends, sign-up to receive economic updates and follow UMB and KC Mathews on LinkedIn.
Based on this post about key indicators of economic expansion and contraction, we think you might also be interested in reading the following content:
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.