Phil Castle, The Business Times
While stock markets likely will continue to decline and leading indicators warn of weakness, Doug May doesn’t yet foresee a broader economic downturn in the near future.
“I don’t think we’re going to have a recession,” said May, manager of the Avant-Garde Advisors mountain west region based in Grand Junction.
May offered a mixed forecast for 2016 in the latest of his twice-yearly presentations on the economic outlook.
Stock markets will continue to move lower, but the end of the year should be better than the start, May said. Oil prices similarly should rise by the end of the year.
The national jobless rate could edge up, but remain close to what’s considered full employment. Consumer spending will increase, May said.
A strong U.S. dollar in comparison to foreign currencies will continue to hamper exports, though. Annual growth in gross domestic product, the broad measure of goods and services produced in the country, will be limited to about 1 percent, May said.
While concerns about an impending recession persist, May said he doesn’t believe the U.S. economy will slip into recession.
That forecast in part defies a proprietary leading economic index May compiles for Avant-Garde Advisors.
Out of the 10 indicators that go into the index, only three have advanced, May said: retail sales, semiconductor sales and a willingness among small business owners to expand. Seven indicators warn of weakness, he said, including those tracking bank lending, corporate earnings, global shipping, manufacturing capacity, money supply, new orders of manufactured goods and oil and natural gas drilling activity.
A year-long drop in the index normally constitutes a “red flag,” but May said he isn’t convinced a recession looms.
U.S. stock markets are likely to continue moving lower. But 2016 should end better for markets than how the year has started, May said.
A contrarian investment strategy could work well in the coming year in buying what might normally be considered “nightmare” stocks while they’re inexpensive and taking advantage of an upward bounce, he said. Rising oil prices later in the year also should help to pull up stock prices, he added.
Accordingly, the energy sector could offer investment opportunities, while
so-called consumer cyclicals fare less well.
Short-term interest rates will continue rising in 2016, while long-term rates will remain flat, he said.
May said he expects the U.S. unemployment rate to stand at 5.3 percent at the end of 2016. That’s slightly higher than a current jobless rate that’s indicative of nearly full employment, although not in all areas of the country.
While recent volatility in U.S. stock markets has been attributed to declines in the Chinese stock market and a slowing economy there, May said he’s not concerned about a situation he considers an adjustment following a bubble.
Moreover, there’s the prospect China and other foreign countries will take steps to stimulate their economies and in turn promote a global recovery, he said. A strong U.S. dollar continues to hamper exports, but a foreign-led intervention could help.
Increases in consumer spending and, to a lesser degree, business investment and government spending should offset a decrease in trade as GDP grows 1 percent in 2016 and the economy remains out of recession, May said.