Recap of Our Call with Economist Marci Rossell on March 31st

This call was hosted by Prosperity Planning, a Registered Investment Advisor. Marci provided her own analysis and views on the economy and her comments should not be construed as investment advice. Please consult Prosperity Planning for investment advice as it pertains to your specific needs. See below for a written summary and highlights of Marci’s key talking points.

She noted the stock market's recent flirtation with correction territory and the dramatic surge in the price of gold to over $3,000 per ounce, acknowledging the growing concerns about a potential recession. However, Rossell stated she was "not yet ready to join the recession bandwagon," emphasizing that current economic data did not yet indicate the "large unexpected disruptions" she believes are necessary to trigger a full-blown recession. While acknowledging existing disruptions, she argued they haven't reached the scale or unexpected nature required to cause an outright economic downturn.

Rossell pointed to the stock market rally in late 2024, fueled by speculation over tax cuts and deregulation, but highlighted a shift in the narrative. Tariffs and escalated deportations are now dominating headlines, creating a less "business friendly" environment. She specifically mentioned the widely discussed April 2nd date, when broad-scale tariffs were rumored to be implemented globally, expressing skepticism and stating she would only believe it when officially documented.

Shifting to a "Quarter Century Review," Rossell provided a compelling look at the significant economic shifts since the year 2000. She highlighted China's dramatic rise in global trade, moving from just 5% of US imports in 2000 to 25% today, while Japan's share reversed from 15% to 5%. Global GDP has nearly tripled from $34 trillion to $100 trillion, and US GDP per person has increased from roughly $36,000 to $67,000.

While the population is significantly wealthier, it is also considerably older, with "peak 65" occurring this year as 4.1 million people turn 65, compared to 1.5 million annually in 2000. Interestingly, the unemployment rate remains relatively stable at around 4%, similar to 2000.

Rossell reminded listeners that despite frequent "recession scares," there have only been two actual recessions in the past 25 years: the Great Recession of 2008-2009 and the Covid recession in 2020. She emphasized her close monitoring of the weekly unemployment compensation applications, noting that a sustained rise above the 300,000-350,000 range would be a cause for concern.

Inflation, currently around 2.8%, is actually lower than the 3.4% in 2000. Financial markets have also seen substantial changes, with mortgage rates lower today (6.5-7%) than in 2000 (8%), and the S&P 500 having reached an all-time high of 6,000 recently, compared to 1,425 twenty-five years ago.

Rossell then addressed the "real puzzle" of why consumer sentiment is so low despite seemingly positive economic indicators. The University of Michigan consumer sentiment index, which peaked at 112 in 2000, has recently fallen below 70. She attributed this primarily to the dramatic increase in housing prices, which have risen far faster than inflation (median home price up from $165,000 to $420,000, a 3.8% annualized increase). This has particularly impacted the confidence of younger generations. She also pointed to the objectively more negative tone of media consumption over the past 25 years. Finally, she highlighted the lasting negative impact of the 2021-2022 inflation spike on people's perceptions, particularly regarding food prices, even though current inflation is relatively "normal."

Drawing on her background as a "classical economist," Rossell firmly stated that tariffs raise prices across the board, citing the 2018 washing machine tariffs as an example, which increased prices by 12% and even impacted the price of complementary goods like dryers. She emphasized that uncertainty surrounding economic policy has a significant cost, causing businesses to pause hiring and expansion decisions. The current economic policy uncertainty index is at an all-time high, which she believes is dragging on financial markets and likely to impact first-quarter GDP. Rossell concluded by stating that the sooner the uncertainty dissipates, the sooner the economy can return to a more "normal" state.

In case you missed it, we have also included a full recording of our call with Marci.

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