Benchmark Brief – January 15, 2015

Dear Friends and Valued Clients,

Happy New Year! The Hollywood blockbuster Back to the Future, released 30 years ago in 1985, has been garnering some headlines lately because its sequel, Back to the Future II, was set mainly in 2015. Although some of the film’s depictions of 2015 – flying cars, sneakers with automatic shoelaces, time travel, and the Cubs winning the World Series – have yet to happen (sorry Cubs fans), some things about life in 2015 did come true. Flat-panel TVs, hands-free gaming, cameras everywhere, video chatting, and yes, even drones, all appear as staples of everyday life in 2015.

Back to the Future II doesn’t tell us much about the economy in 2015, but how might 2015’s economy compare with 1985’s, which is often thought of as part of the roaring 1980s and, in some respects, a golden age for the U.S. economy?
Although 1985 was only the second full year of economic expansion after the back-to-back recessions of the early 1980s (1980 and ’81-’82), the year would see 4.2% economic growth as measured by real gross domestic product (GDP), well above the long term average (1960-2014) growth rate of 3.1%. The economy created an average of 175,000 private sector jobs per month and the unemployment rate was 7.3% as the year began. The Federal Reserve (Fed) raised rates in early 1985, but then cut rates in the second half of the year, while inflation as measured by the Consumer Price Index (CPI) ranged between 3.5% and 4.0% for much of the year. Exports accounted for just over 6% of GDP.

As noted in our Outlook 2015: In Transition letter last week, we expect that 2015 will mark the sixth year of the economic expansion that began in June 2009, and that the odds of recession in the next year remain low, suggesting that the current economic expansion may match or even surpass the expansion that began in 1982. We expect real GDP growth just over the long term growth rate of 3.0%, led by business spending, housing and the consumer. We expect the Fed to begin raising rates later this year, and that the economy will consistently create between 225,000 and 250,000 jobs per month. Inflation is likely to be pulled down by falling oil prices in early 2015 but later in the year, as wages begin to accelerate, inflation may turn higher. In 2014, exports accounted for 14% of U.S. GDP, nearly double 1985’s level, making the U.S. economy better positioned for global growth in 2015 than it was in 1985.

By the end of this year, the expansion that began in June 2009 could possibly become the fourth longest post-WWII expansion, just behind the 1982-1990 expansion that lasted 92 months. As for the flying cars, time travel and the Cubs, we’ll leave that to Hollywood.

As always, we encourage you to contact us with any questions or concerns.

Best regards,
Benchmark Wealth Management

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any idividual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance rferenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

Economic forecasts set forth may not develop as predicted.

This research material has been prepared by LPL Financial.

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