Analyzing the U.S. economy post-pandemic

Chief Economist Eugenio Alemán and Economist Giampiero Fuentes note that while they expect economic growth to slow, they do not foresee a recession in 2024.

To read the full article, see the Investment Strategy Quarterly publication linked below.

We are normally reluctant to use trendy phrases to explain either our good and/or bad calls regarding the U.S. economy. However, saying that ‘this time is different’ is more than fitting today to understand what has happened to the U.S. economy since the recovery from the COVID-19 pandemic. U.S. economic growth surprised friends and foes during 2023 as both the post-pandemic normalization process continued and the Federal Reserve’s (Fed) attempt to bring down the surge in inflation contributed to the asynchronous performance of the U.S. economy.

During a typical economic cycle, as the economy hits the peak of the cycle, the Fed increases interest rates to slow economic activity to avoid inflation becoming a problem down the road. That is, at the peak of the cycle, resources are fully utilized and thus any further pressure on the utilization of these resources typically puts upward pressure on the price of these resources. However, this is not what happened at the end of the pandemic. The truth is that prices started to increase for several reasons, but none related to the actual workings of a typical economic cycle.

Navigating the perfect storm

First, the total collapse of global production during the pandemic reduced the supply of goods while at the same time supply chain issues made the remaining goods very scarce and the acquisition of them extremely expensive. This meant that the increase in the price of the goods was not due to high economic growth but more to the inability to acquire goods cheaply and in a timely fashion. Second, the decline in the labor force participation rate due to the fear of contagion plus all the extra help given by the federal government meant that firms needed to entice workers to return to the labor force through increases in salaries/wages, especially in the service sector of the economy. This also contributed to a further increase in the cost of production and thus in the price of goods and services.

Enter the Federal Reserve

Since price stability is one of the two mandates the Fed has, the other being low unemployment, and one of the only instruments the Fed has to bring down prices is by conducting monetary policy to slow down economic activity, the Fed embarked on one of the most aggressive interest rate campaigns in history to rein in prices.

However, the truth is that traditional monetary policy did not work, and it is still not working. The reason for this is that this wasn’t a normal cycle where a reversal in monetary expansion, i.e., higher interest rates, would help keep economic growth contained or slow down economic growth to keep inflationary pressures at bay. This cycle was created by the COVID-19 pandemic recession as well as by a massive fiscal expansion.

But monetary policy has not been benign during this tightening campaign. The housing markets felt the pain and real residential investment remained in recession territory for nine consecutive quarters. Furthermore, last year’s banking crisis was also triggered by the inability of some banks to adapt quickly to much higher interest rates by adjusting their investments appropriately. Thus, regulators had to intervene and provide liquidity to stop runs on vulnerable institutions.

Waterfall of fiscal spending

As if this was not enough, after the end of the COVID pandemic, the federal government engineered an industrial policy that would keep non-residential investment surprisingly afloat even under otherwise very high interest rates. Both the passing of the Creative Helpful Incentives to Produce Semiconductors (CHIPS) Act, as well as the Inflation Reduction Act (IRA) and, to a lesser extent, the Infrastructure Investment and Jobs Act (IIJA), helped reduce the impact of much higher interest rates on non-residential investment and have contributed to keeping the U.S. economy afloat.

Conclusion

The fiscal policies implemented during the pandemic recession helped individuals and firms survive some of the most perilous times in more than a century and helped keep the economy going during the recession. However, many individuals could not spend the funds due to lockdowns and supply chain disruptions, pushing the personal savings rate higher than 30% during the early stages of the pandemic. However, as the limits imposed during the pandemic were lifted and supply chains normalized, the U.S. consumer roared back with lots of excess savings ready to be deployed.

After inflation reared its ugly head during the recovery from the pandemic recession, the Fed could not stand idle and, while late, started raising interest rates. However, few sectors reacted to the increase in rates—mostly residential investment and the housing market—while other sectors were rescued by the three federal government acts that helped keep non-residential investment from reacting to higher interest rates.

The stimulus payments in the hands of individuals and firms, coupled with the effects of the three government acts, rendered monetary policy ineffective. The Fed has increased interest rates to stall and prevent a new monetary cycle from reigniting the inflation fire, but it is currently refraining from further actions until all of these excesses are flushed out of the system.

Consequently, our outlook no longer anticipates a mild recession for the U.S. economy. However, we still expect economic activity to slow down considerably over the next several quarters as high interest rates will continue to keep lending contained. Therefore, while our revised expectations have moved from the mildest recession in U.S. history to a soft landing, our full-year GDP for 2024 has only moved from 1.7% to 2.1%.

Read the full
Investment Strategy Quarterly

All expressions of opinion reflect the judgment of the Chief Investment Office, and are subject to change. This information should not be construed as a recommendation. The foregoing content is subject to change at any time without notice. Content provided herein is for informational purposes only. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Asset allocation and diversification do not guarantee a profit nor protect against loss. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. If bonds are sold prior to maturity, the proceeds may be more or less than original cost. A credit rating of a security is not a recommendation to buy, sell or hold securities and may be subject to review, revisions, suspension, reduction or withdrawal at any time by the assigning rating agency. Investing in REITs can be subject to declines in the value of real estate. Economic conditions, property taxes, tax laws and interest rates all present potential risks to real estate investments. The companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Is It Too Late to Start Investing?

Investing is a great way to get your money working for you. With a solid investment strategy, you have the potential to increase the money you originally put into your investment, possibly making it easier to cover the cost of retirement, college, and more. However, many people worry that it might be too late to start investing, especially if they're aiming for retirement savings. Even if you're nearing retirement age, you can still take advantage of many types of investments that may improve your savings.

The Investment Time Horizon

An investment time horizon is the amount of time you expect to hold an investment before you cash it out. Your time horizon may be different depending on your specific goals and the length of time until you meet them. For example, if you'll be sending a child off to college in ten years, you may have more time to invest than if you're planning to send your child to college in just three or four short years. Likewise, you have a longer time horizon for retirement investments if you start investing in your twenties and thirties than if you're playing catch-up in your forties and fifties.

Risk Versus Return in Investing

Risk and return often directly correlate when you're choosing an investment strategy. High-risk investments may have the potential for a higher yield, especially in the short term. But they also have a much higher potential to decrease in value. Sometimes, that decrease can be substantial.

Many investment professionals recommend decreasing your overall risk level as you get closer to the time when you will need to take advantage of those funds. For example, if you're within five years of your retirement, you may want to decrease portfolio risk levels to help ensure that your investment remains stable until you're ready to retire.

Start as Early as Possible

Ideally, when you're launching an investment strategy, you want to start as early as possible. The longer your money remains invested, the more potential it has to gain for you. Compounding interest means that after several decades of investment, your money may be much greater than your initial investment. An early start also helps ensure that you have more to set back over time. When you prioritize investing early, you're often in a better position to keep investing.

It's Never Too Late to Get Started

Even if you started your investment strategy later than you intended, it's not too late to get started! There are several investment strategies designed to help increase income for your existing funds. Furthermore, even though you may not be able to take care of the compounding interest you could have otherwise earned, getting started now may mean higher interest than if you put off getting started with an investment strategy.

What to Expect If You Start Investing in Your 50s or 60s

If you start investing in your 50s or 60s, you will have a shorter time horizon to hold onto those investments and allow them to generate income for you than if you had started investing in your 20s, 30s, or 40s. However, you still have the potential to make substantial money through your investments, including funding your retirement account.

Some things to consider:

• You may want to make fewer high-risk investments since you have less time for your portfolio to balance.
• You likely have a better understanding of your personal risk tolerance and your overall financial portfolio.
• Also, you may have better starting investment amounts since you have had more time to accumulate wealth throughout your lifetime.
• You may want to consider the benefits of short-term investments.

By working with CrossleyShear Wealth Management, you can get the help you need to improve your investment strategy and create a plan designed to help you maximize your earnings. CrossleyShear Wealth Management can help you develop the right financial plan regardless of when you begin. Reach out today to discuss your financial planning options and learn more about investment strategies that will fit your needs, regardless of your age.

Document shredding and food drive

Clean out your cabinets and drawers of those old documents and bring them to be safely shredded, on site, by the professionals of Shred it™

and enjoy some good food and live music!

When: May 11th

Where: Outside of the Merritt Island office 2395 N. Courtenay Parkway

Time: 11:00am-2:00pm

Please consider bringing a non-perishable food item for our Food Drive to benefit Harvest Time International

Please Donate:

Low sodium canned vegetables - Canned meats - Canned soups - Boxed oatmeal or grits - Canola or olive oil - Peanut butter - Nuts - No sugar added fruit cups - Canned beans - Granola/Protein bars - Pasta - Beans - Rice - Dry powdered milk

Questions please contact

Karin@crossleyshear.com or call 321-452-0061

Raymond James is not affiliated with Harvest Time International, Shred-it, or 4th Street Fillin Station.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Consider umbrella insurance

Protect what you've built with a secondary insurance policy.

Umbrella insurance might not be a dinner table topic, but it’s worth a discussion if you’re interested in extra asset protection. It’s estimated that one in five people with considerable wealth opt out of such coverage – leaving them vulnerable and risking what they’ve worked hard to build.

An umbrella policy provides extra liability coverage beyond what’s included in your base homeowners, auto and boat policies, for example. But there are other benefits. An umbrella policy can protect you from significant financial loss from unexpected events.

What is an umbrella policy?
An umbrella policy provides excess coverage above what’s offered by your standard insurance, usually in the range of $1 million to $5 million of additional coverage.

Considering over 6% of civil cases that go to a jury trial are awarded more than $1 million in compensatory and punitive damages, if you have assets that would be at risk, an umbrella liability policy will provide additional protection – and peace of mind.

While umbrella insurance can offer additional liability coverage, it’s not identical to excess liability coverage, which gives you higher limits on your policies’ liability coverage. Umbrella policies offer you expanded coverage, including coverage for legal expenses and protection for dependent children.

As it pertains to legal expenses, an umbrella policy will cover anything above a standard policy amount. It will also cover legal fees if someone sues you for libel or slander and may pay out lost wages for appearances at legal proceedings.

In the event someone sues you for being injured at your property (a primary residence or a rental property you own), an umbrella policy can help protect your assets, like your home, vehicles and investment accounts.

If you have dependent children, especially those driving or operating watercraft, an umbrella policy would cover any accidents they cause as well.

What isn't covered?
Umbrella insurance certainly has its benefits, but you should be clear on what the policy doesn’t cover.

If you’re a business owner and have significant assets to cover, it’s wise to have additional coverage, but a policy would not cover any lawsuits related to your business, only your personal assets. (There are commercial umbrella insurance policies that you’d have to purchase separately to cover your business.)

When it comes to vehicles, if you’re participating in any high-risk behavior, like drag racing or off-roading, an umbrella policy wouldn’t cover related incidents. It also doesn’t cover all types of vehicles; farm tractors, trailers or those exceeding a specified weight limit (usually 12,000 pounds) are typically not covered.

In the same vein, umbrella policies don’t cover damage to your own car or property or excessive healthcare costs. For those, you’d have to purchase separate, more comprehensive policies.

Who needs umbrella insurance?
The first test for determining if you might need an umbrella policy is if your net worth exceeds the maximum liability coverage on your standard insurance policies. The umbrella policy would protect your assets beyond that if you’re found liable for an incident.

Some think an umbrella insurance policy is just for the wealthy, but there are other factors that increase the likelihood of needing coverage. If you have a long daily commute or drive regularly during peak traffic hours, you’re at higher risk for an auto accident and therefore could benefit from additional coverage.

From a personal injury viewpoint, if you frequently host house guests, have a dog or have a pool or other feature at your home that carries higher potential injury risk, an umbrella policy is worth considering.

Like all insurance policies, you should consult the policy details to ensure what’s covered or not. Each policy is different, as are your needs for protection. Additionally, because an umbrella policy is secondary insurance, there are underlying insurance requirements before you’re approved to purchase a policy.

If you think you and your family need more asset protection, have a conversation with a trusted insurance advisor who can help guide you to the best choice.

Sources: trustedchoice.com; garvinlegal.com; cnbc.com; investopedia.com; insurance.com

Insurance offered through the Raymond James Insurance Group, an affiliate of Raymond James & Associates, Inc. and Raymond James Financial Services, Inc.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Protecting your intellectual property in a sea of ideas

Intellectual property insurance may help you enforce your rights.

While the basic principles of intellectual property rights are simple, the entire realm of U.S. intellectual property law reflects the complexities and nuances of our world. Considerations include overlapping domestic and international statutes and treaties, criminal and civil law, court precedent, good faith, fair use and litigation in which billion-dollar product lines turn on the finest details of a patent.

Major firms, renowned artists and studios, and organizations intensely reliant on intellectual property rights often keep specialized experts on staff, recognizing that seven-figure litigation expenses may be the cost of doing business at the cutting edge of technology and culture. For everyone else operating a business, creating original works or novel inventions, or using others’ intellectual property as part of your marketing campaign, a floor full of patent and copyright attorneys may be a touch overkill.

Still, intellectual property litigation represents a serious financial liability, and evidence suggests these costs are growing rapidly – weathering what comes may no longer be a viable strategy. However, in recent years, the market has produced a more measured approach for those facing less exposure to litigation than leading technology firms.

Insuring for defense
Defensive intellectual property insurance policies can be purchased to protect you and your business against damages and litigation expenses when you are the subject of an infringement claim. Defensive policies can also extend to your vendors and other downstream entities to whom you hold contractual obligations.

Defensive policies can also protect you against a claim that your registered intellectual property is invalid – a risk that can pose an existential threat to some businesses or cause a startup primed for sale to lose value at a critical juncture.

Policies can also be purchased that protect the value of intellectual property to suit a variety of circumstances, including the risk of theft.

Insuring for enforcement
To realize the full benefit of your intellectual property rights, you have to be willing to defend them. Offensive insurance policies can help mitigate the cost associated with following through with infringement claims against third parties you believe are violating your rights.

There are also third-party services that will scour the internet for unlicensed usage of your intellectual property, acting as a vanguard in defense of your rights.

A systemic approach to protecting your intellectual property
As with anything, an ounce of prevention is worth a pound of cure. If you find yourself in an intellectual property dispute, you’ll be glad you spent time creating rigorous processes and documentation to assert your rights. This may include registering copyrighted works with the U.S. government, having employees sign nondisclosure agreements, taking active measures to protect your trade secrets and bulking up your cybersecurity processes.

Individual creators – authors, artists, social media stars and influencers among them – need to also be careful about how they publish their work and to whom they assign rights.

As part of this, you may consider consulting with specialist attorneys and technologists.

Insurance may be an important backstop to these processes or may be the first step in protecting a specific piece of intellectual property. Your financial advisor can help parse the details of available policies and providers.

Fast facts

• According to the U.S. Patent Office, 41% of U.S. domestic output came from intellectual property-intensive industries in 2019.
• Those firms represented 44% of all employment in 2019 or 62.5 million jobs.
• U.S. copyright is granted at creation. However, works can be registered to better establish ownership.
• In 2020, the U.S. Copyright Office registered 443,911 claims of authorship.
• The first formalized intellectual property law is credited to Venice in 1474. It was a sophisticated statute that recognized inventors’ right to profit from their creations with limited terms of exclusivity.

Sources: U.S. Patent and Trademark Office; U.S. Copyright Office; Insurance Business America Magazine; Marsh McLennan; Wired

Raymond James does not provide tax services. Please discuss these matters with your legal professional.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.