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Commerce Trust Co. economist Scott Colbert shares his outlook for the 2018 financial market.
Commerce Trust Co. economist Scott Colbert shares his outlook for the 2018 financial market.

Commerce Trust economist predicts yearslong economic expansion

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Commerce Trust Co. chief economist Scott Colbert expects the country’s current economic expansion to last for years.

At a Wednesday luncheon at the White River Conference Center, Colbert, Commerce Trust’s chief investment officer, shared his 2018 financial outlook with more than 100 local investors.

Colbert said financial indicators show the current stock market expansion — the second longest in U.S. history — could continue for four more years. Afterward, Commerce Trust provided Colbert’s presentation notes to Springfield Business Journal.

“Ironically, this recovery is the weakest on record in strength, but it has legs,” Colbert said at the presentation. “Unemployment continues to fall, wages are finally rising, and inflation is benign for the most part and near the Federal Reserve target.”

Citing figures from Bloomberg, Colbert said the inverted curve indicating timing for the next recession is at 47 base points, below the average of 95. The economy has been in recovery for 106 months, and Colbert estimates that could go as long as 144-153 months.

Citing figures from Bloomberg, Colbert said the inverted yield curve, which helps to indicate timing for the next recession, began trending downward a couple years ago. The inverted curve is currently at 47 base points, with an average spread of 95. During the recession, the inverted curve hit a high of 280 base points. The inverted curve shows the economy has been in recovery for 106 months, and Colbert estimates that could last as long as 144-153 months.

Colbert said economic expansions end due to “unforeseen economic shock” when the Fed raises rates to combat “late-cycle economic inflation,” which is sparked by rising wage growth, higher energy prices and “overzealous credit expansion.”

“We are not there yet and won’t be for some time,” he said.

Additional financial outlooks from Colbert’s presentation:
    •    National debt compared with gross domestic product had a recent peak at 370 percent in 2008, and it’s currently at 329 percent, according to the Fed.
    •    A long-term driver of economic growth is the labor force. In 2004, the average worker was 40.3 years old with 65.9 percent labor force participation. By 2024, the Bureau of Labor Statistics estimates the average worker age will be 42.4 with 60.9 percent participation.
    •    The labor force’s annual average growth from 2014 to 2024 is estimated at 0.4 percent, according to the Bureau of Labor Statistics, with real GDP growth anticipated at 2.2 percent.
    •    Debt-to-income ratios in American households have dropped from a recent high of 13.2 percent in fourth-quarter 2007 to 10.3 percent in the first quarter of 2018, according to the Bureau of Economic Analysis and JP Morgan Chase & Co.
    •    According to the same reports, household net worth grew from an approximate average of $55,000 in 2009 to nearly $100,000 in the first quarter this year. Total consumer assets grew from a low of $69 trillion in first-quarter 2009 to the current level of $114.4 trillion;
    •    Colbert said employment is steady, with the BLS reporting a jump of 10 million jobs since January 2008 and growth hovering around 2 percent.

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