My name is Neal Frankle and I’m going to, over the next 5 or 10 minutes, share with you our firm’s sense of the economy. Economics is something that everyone loves to talk about, right? Probably you find it fascinating, most people actually don’t, but it is interesting to us and it’s important to you because once you understand what’s really going on in the financial world, you’ll be able to put the news in perspective so when you hear some know-it-all journalist or neighbor talking about interest rates, or trade wars, or the economy, after today you’ll realize you know a lot more about it than they do. So with that in mind let’s get going.

Before this presentation, when we asked our clients how they felt about the economy, 32% of you were positive about the economy, 60% were neutral, and 8% were negative. So let’s see how that compares with our outlook on the economy, let’s get the real numbers.

The Federal target for inflation is 2%. That’s the rate that the Fed thinks is healthy. Below 2% and the Federal Reserve will want to stimulate the economy, because, well they just don’t want the economy to slow down and cause a recession and increase unemployment. When inflation is above 2% the Fed wants to slow things down a little bit, slow the economy, they don’t want to get into a spiral of hyperinflation. So 2% is the target, it’s just about right as far as the Fed is concerned.

Inflation in 2019 was 1.76% and that’s pretty low, expected inflation in 2020 is about 1.9% which is still very low. So what do you think the Federal Reserve is going to do? Probably either keep interest rates steady or reduce interest rates to stimulate the economy. So inflation here is signaling that the economy is healthy and right now we don’t have an inflation problem, that could change but based on the data that we have right now inflation is not a problem.

Let’s go on. When 5% or less of the workforce is unemployed the Fed calls that full employment. That’s the target the Fed has for a healthy economy. You can see what’s been happening with the unemployment rate, basically since October 2009, it’s gone down, and down, and down and it’s at its lowest point right now. In fact, the unemployment rate is 3.5% right now, that’s the lowest since 1969. So that’s the lowest for the last 50 years and this is a really good thing, especially if you’re looking for a job.

Now what about wage growth? Wage growth is currently at 3.7%, actually wage growth did slow a little bit, wages were growing at 4% and they’re slowing down now to about 3.7 %, but that’s actually a good thing because economist feel that any wage growth below 4% means wages can grow without causing inflation. So, a slowing wage growth gives the Fed more reason not to raise interest rates, and that’s a very good thing for investors.

Wages are going up, although the pace of wage growth changes, and it’s slowing a little bit, it’s still going up. Some journalists report declines in wage growth and that’s meant to scare you, but we haven’t had declines in wages, we have had some declines recently in the rate at which wages are going up, but it really, it’s just not that important and it’s not a bad thing it’s actually a very good thing.

Now what we’re looking at here is a balance sheet of Americans as consumers. As you can see we’re doing really well. Our assets on the left side of the screen are about eight times as much as our liabilities on the right side. In fact, we’re about 50% richer now than we were before the peak in 2007. Yes, we have liabilities, but mortgages remain the biggest debt and mortgages are, you know, we don’t have a big problem with mortgages right now. Rates are low, and most people are able to handle that, so we don’t have a problem with mortgages, or debt, and our balance sheet looks really good, so we can say that consumers are looking very strong.

Now what about manufacturing? There are two major manufacturing surveys the economist look to in gauging the health of manufacturing in our economy. One is the Supply Management’s Purchasing Managers index, which was at 47.2 and indicates slowing. Now the other is the IHS Markit purchasing managers index of 52.4 in December, and that remained at a 7-month high.

So there’s disagreement. One measurement says that manufacturing is slowing, and the other says that manufacturing is growing. I don’t know which one is right, to us at Navalign it feels like manufacturing is probably slowing. Boeing is a huge component of the manufacturing sector and we all know about their problems. Boeing will probably drag the manufacturing sector down for a bit longer, maybe 6 months, maybe longer.

Keep in mind, and this is very important, that manufacturing only represents about 11% of our economy, so it’s important, but it’s not the end-all and be-all of the U.S. economy anymore.

Global trade, we’ve seen several new global trade deals, and you probably heard about some of these. First, the phase one trade deal with China, and the USMCA which is a trade deal with Canada, the United States and Mexico. KORUS, the Korea U.S. Free Trade Agreement, and the U.S. Japan trade deal. All of these agreements are very good things which stimulate economic growth, both here in the United States and around the world.

The bottom line, the record-breaking U.S. expansion will likely continue in 2020. Inflation is low, interest rates are low, we have record unemployment, wage growth is good. Phase one of the trade deal with China, USMCA, which again is the trade deal with Canada, Mexico, and more. These are all good things

Now, there could always be unforeseen events, but the way things look now, the economy looks good. There is the fear of coronavirus which is an issue which we’re going to talk about more, this could become a real problem for the global economy. It could potentially slow the economy of the world and potentially create a recession; we don’t really know right now. It’s something that we’re watching, but to give you some kind of perspective there were similar fears about the SARS outbreak back in 2003. It was a catastrophic health problem, 800 people died you know, but the market did well. Right now, we have close to 2,000 people who have died from coronavirus, and just to give you, again some kind of a way to get some perspective, every year hundreds of thousands of people die because of the common flu.

So this is a problem, it’s not a pandemic at this point, it is spreading, but there looks like some positive developments in the attack against this problem, and we’ll have to continue to watch this and will definitely let you know.

The takeaway is that you should not let a lopsided presentation of one economic event or datapoint have undue influence on you. Your best bet is, if the last 100 years are anything to learn from, your best bet is to consider your long-term goals and willingness to accept risk, and talk things over with us so we can create a financial plan that you can live with long-term.