Wage inflation may seem like a relic of the past. But veteran Wall Street prognosticator Bob Doll sees it ahead as one of the consequences of faster U.S. economic growth, along with some other mostly positive indicators.
Doll, chief equity strategist at Nuveen Asset Management,
says in his latest weekly commentary that the latest leg up in stocks is because global growth remains solid, other central banks are still easing, and corporate earnings are still beating expectations.
However, he said the most recent recovery in stocks to record levels may mean there is limited upside for the market through the end of 2014 – in other words, it’s possible much of the typical year-end rally has already occurred.
Perhaps it all adds up to the proverbial Goldilocks economy – neither too hot nor too cold.
“At this point, we would say the U.S. economy is becoming self-sustaining, and additional Fed stimulus may no longer be needed. Looking ahead, the United States may be in position to act as a growth engine for the rest of the global economy,” Doll remarked.
He sees several factors affecting the financial outlook for investors.
First, Doll is among those who subscribe to the notion that the U.S. is headed for 3 percent GDP growth.
“This would represent a stronger pace than what we have seen in recent years. Yet, we are conscious of some potential warning signs, including a rising U.S. dollar and widening credit spreads, which could be viewed as negative signals. “
However, he concludes that President Barack Obama’s efforts to allow millions of illegal immigrants to stay in the United States foreshadows more gridlock in Washington, D.C., even if the damage of a government shutdown appears unlikely.
Doll predicts a strong holiday shopping season ahead, and he sees rising U.S. energy production as the reason why oil prices are declining – a factor that clearly could put more money back into the wallets of consumers.
“Wage inflation could begin to rise, he predicted. “Wages have been static for much of the current economic recovery, and the same factors driving spending levels higher should also promote modest wage growth.”
Doll concludes the U.S. economy is in a transition stage on the way to better times.
“Today, while the U.S. economy does face further headwinds, the main sectors of the economy (households, corporations, financial institutions and government) are all in much better shape than they were several years ago, which should provide a better foundation for growth in the coming years. “
Scott Grannis, former chief economist at Western Asset Management, believes better times are ahead so long as government does not throw up obstacles.
“It's hard to get pessimistic about the future when the world's stock markets are becoming more and more optimistic,”
he wrote recently on his Calafia Beach Pundit blog.
Grannis said the take-home lesson for the U.S. is that neither fiscal stimulus from Washington, D.C., and monetary stimulus from the Federal Reserve really work.
“Government policymakers cannot conjure up prosperity by spending more money or cutting interest rates. What's needed is for government to get out of the way and boost incentives for the private sector to jump-start the economy. That means lowering marginal tax rates, simplifying tax codes, eliminating subsidies, and reducing regulatory burdens," he wrote.
“This is not rocket science,” Grannis wrote. “There's nothing left to try except what is most likely to work. Politicians need to hand the reins over to the private sector and market forces and step aside. The world's stock markets seem to be saying that this is a real possibility that may come to fruition within the foreseeable future.”
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