David Kelly, chief global strategist for J.P. Morgan Asset Management, thinks a good analogy for the current U.S. economy is the bumper lanes at a bowling alley.
“No matter how badly you aim the bowling ball it will ricochet off the pads as it heads down and hit some of the pins at the end,” Kelly said during a recent “Market Insights” conference call. “I sort of feel like this is almost a bumper-lane economy. In which it’s very hard to get this economy to go into recession, but it’s also very hard to get this economy to accelerate to anything faster. So we end up with this economy just meandering forward.”
Next month will mark the entry into the ninth year of economic expansion, which Kelly said is now the third longest expansion since the Civil War, and “it keeps on going.”
While Kelly doesn’t expect the economy to fall into a recession anytime soon, he also doesn’t expect sustained growth of 3% or more — and that may partly be due to the delay and uncertainty surrounding President Donald Trump’s promised tax cuts.
“You have to look at the American economy from the perspective of, maybe we’ll get a little stimulus from this when we finally get some agreement on [the tax cuts] but it may not be the amount of stimulus that people thought could occur immediately after the election.”
In addition, Kelly said a pickup in consumer or business spending is unlikely.
“You’ve got a consumer sector in this expansion that is very mature, [and] it’s hard to see a real pickup in consumer spending or business spending, which pushes us up to a sustained 3% growth,” he said.
Kelly spent a considerable amount of time focusing on the president’s agenda, particularly the tax plan outlined on April 26, and how that may or may not affect the economy.
Trump offered a sparse blueprint of his tax reform plans in a one-page document.
“The devil is in the details and there aren’t too many details here,” Kelly said. “And they have said that’s deliberate because they want to make sure they can negotiate this.”
Kelly focused on what is clear: an elimination of the Alternative Minimum Tax and the estate tax, and the repeal of the 3.8% Medicare surtax on investment income.
“Those things all cost money,” he said.