Full Report



Asset Allocation Update
Fourth Quarter, 2015

From 1980 to 2007, the economy grew near a robust 3-3.5% trend growth rate throughout the 27-year period. The period began with the Dow at 840 and ended 2007 with the Dow over 13,000. Recessions were of the normal variety, with business slumps followed by robust recoveries and expansions. Technology, an expanding workforce, a pervasive spirit of
entrepreneurial risk-taking, freer trade, lesser regulation, and reduced tax burdens all fostered growth.

This 27-Year Period Saw:

1. GDP grow to $15 trillion from $6.5 trillion,
2. Household net worth grow to $67 trillion from $10 trillion,
3. The creation of 40 million new jobs,
4. The unemployment rate fall to 4.5% from 7%, and
5. Inflation fall to 4% from 12%.

Underlying all this was solid growth in both capital and labor. Productivity also contributed to growth, as the information revolution took hold with the advent of the personal computer.

2007 and Beyond

The 2007-2009 recession was different than past recessions and marked a secular change in growth. To many Americans, the anaemic recovery of the past few years felt far different than past recoveries. It was slower and more shallow in nature. It also failed to lift all boats. Many were left behind as the economy got better but employment and wage gains were elusive for the majority of Americans.  Importantly, we see that the key drivers of economic growth weakened during and after the recession. Employment recovered very slowly, and large numbers of Americans left the workforce. Capital investment and
productivity both grew more slowly than in the past. These new trends were accompanied by a reduction of private sector borrowing and an increased propensity for households to save. The government sector grew significantly through increased regulation and deficit-financed spending.

Some described the lower growth path as the “new normal” economy. To date, we have yet to see evidence that the economy has left this lower growth path. Accordingly, we continue to see the economy proceeding along a positive, but slow, growth path across our forecast horizon.

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