The outlook for the U.S. economy remains uncertain, perhaps more than usual, yet recent trends are relatively clear and promising. A variety of economic and financial metrics—highlighted by the Economic Trend Index (ETI) and the Economic Momentum Index (EMI)—continue to indicate ongoing growth. Furthermore, econometric models forecast a positive trajectory for the U.S. economy in the near future.
Housing starts are anticipated to increase by 5.0% in February compared to January, based on The Capital Spectator’s average econometric forecast. This is a contrast to the 8.5% decline noted for January (seasonally adjusted annual rate). The forecasted growth for February exceeds several consensus predictions from economist surveys.
● The Dividend Imperative: How Dividends Can Narrow the Gap between Main Street and Wall Street
By Daniel Peris
Q&A with author via The Globe and Mail
Q: You demonstrate that dividend payout ratios—dividends as a percentage of profits—of S&P 500 companies have declined to an average of 30%, down from 50% thirty years ago. What accounts for this shift?
A: Multiple factors contribute, but I emphasize the continuous drop in interest rates. Lower interest rates allow companies to offer a smaller yield while still attracting investors.
Q: Why is this concerning?
The substantial reduction in dividend payout ratios over the last three decades has transformed investing in corporations into a speculative venture rather than a business investment. To profit, investors must rely on the hope of selling stocks at a higher price. Many no longer see themselves as stakeholders in the companies they engage with daily, but rather as speculators in the market.
Today’s report on industrial production for February presents another challenge to analysts who argue that the U.S. economy is on the brink of recession, or worse, already in one. Notably, industrial output showed robust growth, increasing by 0.7% in February—the highest monthly increase since November. The cyclically sensitive manufacturing component also performed well, rising by 0.8% from January’s figures. Could this be misleading us about the actual trend? Perhaps, but the data leans the other way when we examine the year-over-year change in industrial production, which has remained steady, gaining a bit more speed with a 2.5% increase for the year ending last month, compared to a 2.3% rise for January.
The risk premium for a broadly diversified, unmanaged portfolio of asset classes is expected to decrease over the coming years. Will this trend improve with smarter management and better rebalancing decisions? In theory, it can. However, in practice, only a minority of investors consistently achieve returns that surpass benchmarks over the long term. This applies to individual asset classes as well as to asset allocation overall. Such is the nature of the arithmetic of active management. If there is any chance for progress in this area, much of the strategic insight for enhancing results will have to originate within your portfolio, as previously discussed. While closely monitoring your asset allocation fluctuations won’t guarantee a higher risk premium, enhancing results becomes significantly more challenging without fully utilizing this information for effective portfolio management.
The recent drop in initial jobless claims brings the figures close to a five-year low, which is a positive indicator for the labor market and, therefore, for the economy. The latest decline in new claims reinforces last week’s favorable data regarding private nonfarm payrolls growth in February. While some analysts maintain that the U.S. economy is slipping into recession, the data presents a different picture, especially regarding the labor market, which continues to grow steadily.
The upcoming report on industrial production for February is predicted to show a 0.4% increase, according to The Capital Spectator’s average econometric forecast. This anticipated growth contrasts with a slight decline of 0.1% noted in January. It is worth mentioning that the projected increase for February sits at the lower end of consensus estimates from economists.
Retail sales increased at a stronger pace in February, rising 1.1% from January, marking the highest monthly growth since last September, as reported by the Census Bureau. This growth was widespread, with most sales subsectors showing positive monthly changes. Additionally, the encouraging year-over-year figure revealed a 4.6% increase in retail sales for the 12 months ending in February, notably faster than the 4.2% annual rate recorded in January. This data indicates that consumer spending is continuing to grow steadily, suggesting that overall economic momentum remains positive.
The phrase “you have to run faster just to stay in place” resonates in Bill Bernstein’s recent e-book Skating Where the Puck Was: The Correlation Game in a Flat World
The forthcoming report on U.S. retail sales for February is projected to reveal a 0.7% increase for the month, according to The Capital Spectator’s average econometric forecast. This represents an improvement over the 0.1% gain noted by the Census Bureau for January. Notably, the projection sits at the higher end of several consensus estimates from economist surveys.