Practical analysis for investment professionals
22 June 2017

Recovery or Expansion? Abby Joseph Cohen, CFA, on the US Economy

Posted In: Economics, Fixed Income

The US economy is not just in recovery, it is now in an expansion, according to Goldman Sachs senior investment strategist Abby Joseph Cohen, CFA.

Growth has varied by sector, as always, but Cohen told delegates at the 70th CFA Institute Annual Conference in Philadelphia that she saw room for optimism. From her perspective, the US economy is looking far healthier than it did during the years in and around the 2008 financial crisis.

The US consumer balance sheet is now in much better shape, Cohen said. Household debt service payments as a percent of disposable personal income have fallen from a peak of over 13% in the fourth quarter of 2007 to roughly 10% at the end of 2016. Of course, this is contingent in part on the persistence of low interest rates. Because rates are already low, Cohen expects that a modest rise would not have much of an adverse effect.

Cohen did express concerns about fixed-income markets, however. “There is not one market where we think rates are as high as they should be,” she said. If interest rates do move up, they could pose difficulties for countries that had been experimenting with negative rates.

“As a former Fed economist, I understand the argument for negative interest rates,” she said. “As a market observer, I think they are a folly.”

Nevertheless, Cohen remains relatively bullish. She urged policy makers to push basic research and science, technology, engineering, and mathematics (STEM) education. STEM-related investment not only creates employment benefits for individual workers, she said, but also boosts productivity in the broader economy. President Donald Trump’s plans to cut regulations should also stimulate economic growth, Cohen said.

As a final point to support the case for economic expansion, Cohen observed that companies have been allocating more to dividends and stock repurchases in recent years, spending only 58% of their cash on capital expenditures, research and development, and mergers and acquisitions — down from a historical 70% or so.

Looking forward, she expects companies to move away from dividends and stock repurchases and back toward more growth-related investments.

All in all, in Cohen’s view, the outlook for US-led global growth is encouraging.

This article originally appeared on the 70th CFA Institute Annual Conference blog. Experience the conference online through the Virtual Link. It’s an insider’s perspective with archived videos of select sessions, exclusive speaker interviews, discussions of current topics, and updates on CFA Institute initiatives.

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Photo courtesy of W. Scott Mitchell

About the Author(s)
Ron Rimkus, CFA

Ron Rimkus, CFA, was Director of Economics & Alternative Assets at CFA Institute, where he wrote about economics, monetary policy, currencies, global macro, behavioral finance, fixed income and alternative investments, such as gold and bitcoin (among other things). Previously, he served as SVP and Director of Large-cap Equity Products for BB&T Asset Management, where he led a team of research analysts, 300 regional portfolio managers, client service specialists, and marketing staff. He also served as a Senior Vice President and Lead Portfolio Manager of large-cap equity products at Mesirow Financial. Rimkus earned a BA degree in economics from Brown University and his MBA from the Anderson School of Management at UCLA. Topical Expertise: Alternative Investments · Economics

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