● Future: Economic Peril or Prosperity?
Edited by Christopher J. Coyne, et al.
Summary via publisher (Independent Institute)
What will the economy look like in fifty years? How will our lives as consumers and workers be transformed by the coming innovations in technology, the marketplace, and the workplace? How will changes in demographics and dependency affect our political system? Will economic freedom rise or fall? What, if anything, would greater prosperity do for one’s total well-being? Future: Economic Peril or Prosperity? poses these and related questions to a diverse group of economists whose predictions will inspire thoughtful consideration and debate. As co-editor Robert M. Whaples writes in the introductory chapter, “The predicted changes range from innocent innovations that will make life a bit more comfortable…to potentially chilling technologies that might strip our human dignity.”
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US employment growth is looking resilient after all. Companies added 217,000 jobs in July, the Labor Department reports. Although that’s down from June’s 259,000 gain, it’s clear that the economy is still minting new positions at a healthy pace. As a result, the surprisingly dark profile in May, when private sector employment contracted by 1,000, looks like noise.
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The US stock market has reached new highs recently and closed yesterday (Aug. 4) only slightly below a record. In fact, the S&P 500 has been closing at or just below a record high for weeks as the index wiggles within a tight range. From a technical perspective, the latest run of strength look bullish. But what should we make of Mr. Market’s reluctance to do much of anything since the S&P has recovered from a series of sharp selloffs? Is this merely a consolidating phase that leads to even greater heights? Or is the crowd starting to wonder if the rally off the recent lows in February was mostly a speculative binge without fundamental support?
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The Sharpe ratio was introduced half a century ago and it’s still going strong. Although the world is now awash with competitors, the granddaddy of quantitative risk metrics endures. Its longevity and widespread use drives some analysts batty, but for good or ill the SR is deeply embedded into the fabric of risk management discussions and analytics. Part of its appeal is its simplicity, but that can also be a source for abuse. Complexity doesn’t have a monopoly on misguided applications when it comes to risk analysis.
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For the last several years, the 2-year Treasury yield has been trending higher. It’s been a slow crawl higher from a low base for this maturity, which is said to be the most sensitive for rate expectations, but the upward sloping directional bias has been clear. The same can be said for the benchmark 10-year yield, but the trend has been moving in the opposite direction—down. But this long-running divergence appears to be fading as the 2-year yield succumbs to gravity. If the shift continues, the implied message amounts to a sturdier forecast of lower economic growth and inflation.
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US economic growth remains sluggish, as last week’s disappointing Q2 GDP report shows, but you can’t blame the weak macro trend on consumers. Personal consumption expenditures continued to increase at a modest rate in June, rising 0.4% for the second month in a row, the Bureau of Economic Analysis reports. The gain pushed the annual pace up to 3.7%, close to the strongest year-over-year advance in nearly a year. There are any number of challenges weighing on the economy, but weak spending on Main Street isn’t one of them.
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The expected risk premium for the Global Market Index rebounded in July, rising to a 14-month high. GMI—an unmanaged market-value weighted mix of the major asset classes—is expected to earn an annualized 3.8% risk premium over the long term, moderately above last month’s estimate. (For details on the equilibrium-based methodology that’s used to generate the forecasts each month, see the summary below.)
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Foreign stocks led markets higher in July. Equities in developed markets ex-US (MSCI EAFE) topped the performance list with a 5.1% total return last month, edging out emerging-market stocks (MSCI Emerging Markets), which tacked on 5.0%. July’s third-strongest gain among the major assets classes was also outside the US: foreign property shares (S&P Global ex-US Property), which also popped 5.0% (effectively tied with emerging-market shares).
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