Johnson Financial Investment Expert: More growth, low inflation ahead

Mount Pleasant, Wis. (May 6, 2018) – Even though inflation has accelerated with an improving U.S. economy, it will likely stay under control for some time to come, says Brian Andrew, Johnson Financial Group's chief investment officer.

Milwaukee‐based Andrew presented his analysis of the U.S. economy and stock and bond markets to about 70 JFG clients during the company's annual economic forum Thursday at the Delta Hotel by Marriott Racine, 7111 Washington Ave.

Much of Andrew's presentation was geared specifically toward investors, but he also talked at some length about inflation, which affects everyone. Last year inflation was at its highest level in several years: The U.S. Bureau of Labor Statistics' Consumer Price Index for All Urban Consumers rose by 2.1 percent in 2017.

However, for several reasons, Andrew believes inflation will not be ramping up much any time soon.

One reason has been slow wage growth — one of the largest components of inflation — of less than 3 percent. That is largely because baby boomers are retiring at the top of their pay scales and being replaced by lower‐paid young people, Andrew said.

“And that's happening in such great numbers that it's putting a lid on wage growth,” he said.

Another inflation damper is that this country is producing more oil per year now than it did since 1970, Andrew said. And the amount has approximately doubled since 2010.

“From an inflationary perspective, we're a lot more in the driver's seat with respect to energy, and energy's a pretty significant input for just about every good — and even a lot of services that we produce,” Andrew said. “We have a lot more control here than we did 20 years ago or 40 years ago.”

Another inflation fighter is e‐commerce, or online shopping, he continued. When shopping online, most people focus more on price than brand, Andrew said.

However, “only” 9 percent of retail sales last year came through the online channel, he said.

“We're at the beginning of this — not at the middle or the end,” Andrew predicted. “… That transformation will keep a lid on inflation for an extended period of time.”

Better economic growth

Andrew also predicted better economic growth this year than last, based on several factors.

One is a growing competitiveness of American manufacturing against China as that country's input costs rise. The differential in manufacturing cost competitiveness is now only about 1 percent and “on its way to zero,” Andrew said, because China's people are demanding higher wages, cleaner water and cleaner air.

“That means higher regulation, higher cost of production, and as a result you're starting to see manufacturing, and trade in general, move back in the U.S.'s direction,” he said.

The new tax law will put more money into circulation, Andrew continued. Lower corporate taxes will put an additional total of $380 billion into the economy this year including business investment, he said.

Also, the U.S. government budget has an additional $200 billion of spending in it.

“So, that gets us to almost $600 billion of new money coming into the economy in 2018,” Andrew said. Growth can't help but pick up, he added.

Article by Michael Burke | The Journal Times