You can’t turn on Fox News or MSNBC without hearing that the current economic recovery, if you can even call it that, is anemic, weak or unacceptable. But, “This business cycle is not as anemic as people portray it,” said James Swanson, chief investment strategist and portfolio manager at MFS Investment Management. The firm held an economic outlook event Tuesday afternoon. This cycle is different, Swanson said, in that growth corporations and consumers are seeing is not being pushed ahead by increased borrowing.
It has some very strong legs to it. Again we know that interest rates will be on hold for two years. The shape of the curve is still positive. That’s one of the best indicators of future growth. And we have population growth here, productivity, and we have consumer spending and consumer ability to service debt.
Swanson said the cycle will continue because the average business cycle lasts five years, which would put us near the halfway point.
But it wouldn’t be an economic outlook without some bad news: “We are Italy five years down the road,” Swanson said. Italy’s debt to GDP is currently at 120 percent. And while the U.S.’s debt to GDP is currently at about 92 percent, it’s expected to reach 100 percent by next year, what Ken Rogoff, professor of economics at Harvard University, calls ‘the threshold effect.’ When the ratio hits 100 percent, the business cycle does not end, and the trend growth rate of that country is diminished by a third, Swanson said. That would likely mean much more prolonged periods of the same standard of living. “I would say it’s a Rogoffian future.”
Despite the somewhat doomey long-term outlook, Swanson provided four areas of the market where he sees opportunities: