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US economy: Modest growth continues

28 October 2016 | Markets and Economy

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In the United States, the economy continues to grow at a slow but steady pace. Vanguard's chief economist for the Americas, Roger Aliaga-Díaz, and Andrew Patterson, Vanguard senior investment strategist, discuss their expectations for US growth as we head into 2017 and what it may mean for investors.

Noni Robinson (moderator): Roger, as we enter the fourth quarter, what's your view on the US economy?

Roger Aliaga-Díaz (Vanguard chief economist, Americas): It's a positive view, 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 labour 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 US 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 US. 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 (Vanguard senior investment strategist): 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 focusing on periods of stress, periods of market volatility that we will have more to come. We had [that] with 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 course of action for investors is to simply try to mitigate the risk via diversification of the portfolio, as Andrew was saying.

Important information:

Recorded on 3 October 2016

This video is for professional investors as defined under the MiFID Directive only. In Switzerland for institutional investors only. Not for public distribution.

This video was produced by The Vanguard Group, Inc. It is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

The opinions expressed in this video are those of individual speakers and may not be representative of The Vanguard Group, Inc.

Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority. In Switzerland, issued by Vanguard Investments Switzerland GmbH.

VAM-2016-10-13-3977

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