Vanguard experts discuss the U.S. economy

The U.S. economy continues to grow at a modest pace. Chief Economist for the Americas Roger Aliaga-Díaz and Senior Economic Strategist Andrew Patterson discuss their expectations for the economy as we head into 2017 and what that means for investors.

Also of interest:

All investing is subject to risk, including the possible loss of the money you invest.


Vanguard Perspectives® Noni Robinson: Roger, as we enter the fourth quarter, what’s your view on the U.S. economy?

Roger Aliaga-Díaz: It’s a positive view although albeit modest. Our outlook for the year has been one of modest expectations of growth and we’ve been getting basically that pace of growth with some important progress in the labor market, particularly the unemployment rate, and the pace of job growth has been significant. That has translated into a healthy pace of household income growth. And both things together, jobs and income, have basically explained the strength of the U.S. consumer. The consumer has been really carrying a lot of the weight of the growth that we have experienced during the year and we expect that for the fourth quarter, too.

Noni Robinson: And what are the implications for markets and portfolios?

Roger Aliaga-Díaz: A view of slow or modest growth with modest inflation really explains why we are in a low-yield environment. And because this view is really more of a secular view, it’s something that is not just for 2016 or only for the U.S. Actually, it’s more and more global in nature. We expect that low-yield environment, that low-return environment, to continue for a few years.

Andrew Patterson: To that end, we have a lot of conversations with clients, both at home and abroad, to try to prepare them for the idea of our guarded return outlook going forward. Those clients who may have become accustomed to 7%, 8%, 9% from their 60/40 balanced portfolio in the past—we don’t necessarily believe those same types of returns are in the cards. It’s sometimes a difficult story to tell, but we think a very important one, because clients do need to make the most informed decisions that they can, keeping in mind the idea that maybe they have to reconsider just how much they’re willing or able to spend, or how much they’re willing or able to save, or even, in more extreme cases, just how long it is they have to work to achieve their goals given this lower, guarded return environment.

Roger Aliaga-Díaz: And I would add that that decision is the critical one to think about; what are the return expectations and what’s the best you can do with the portfolio, as opposed to be focusing on periods of stress, periods of market volatility that we will have more to come. We had the Brexit shock, we had a recession scare at the beginning of the year. And the lesson learned is that it’s really quite difficult to predict and time those events appropriately. And the best way, course of action for investors, is to simply try to mitigate the risk via diversification of the portfolio, as Andrew was saying.

Important information All investing is subject to risk, including the possible loss of the money you invest. Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. © 2016 The Vanguard Group, Inc. All rights reserved.