Looking Ahead amid the Recession

Market turmoil has resulted in a higher savings rate for Americans as they responded to plummeting wealth and job insecurity. However, we could see some of that consumption come back up, noted panelists at a press briefing today by Prudential Financial.

In reality, consumption fell much more than income, noted Robert Tipp, managing director and chief investment strategist for Prudential Fixed Income Management. As the recovery and job market stabilize, we’re likely to see the savings right go back down, he added.

As prices stay low while businesses recover, spending might increase. Americans like to spend as the prices get slashed, said Quincy Krosby, chief market strategist for Prudential Annuities. “Don’t ever underestimate the U.S. consumer. The U.S. consumer will go out there when there’s a bargain.”

Americans will likely keep some of their savings habits. The “newfound frugality will have at least a year or two of legs before we go back to our old ways,” said Edward Keon, managing director and portfolio manager for Quantitative Management Associates, a limb of Prudential Investment Management.

Keon noted that another offshoot of the Recession will be Baby Boomers working longer—which isn’t necessarily a bad thing as it facilitates economic growth. He mentioned earlier this year that the workforce and financial advisers will need to adjust to the changing retirement landscape (see “Prudential Pushes for Guaranteed Products, Auto-Enrollment”)

Something that makes this recession different than past recessions: women. Krosby noted that more women in the workforce means that even if one person in the household lost a job, they might still have another income—a cushion that wasn’t present in the past. That trend could also help facilitate more spending.

Investment Opportunities

It might be a scary environment—but that tends to be a good investment opportunity, said Tipp at Prudential's press briefing. “There’s a real feeling of wind-up in the economy,” he said. However, he likened it to holding a compass on the North or South Pole, watching it spin. 

Tipp said there is opportunity in most of fixed-income investments. However, short and intermediate-term treasuries are the most dangerous. “For the rest of fixed-income, you are in a sweet spot,” he said.

The destruction of the past year has seen migration to fixed-income in portfolios, but we’ll continue to see more investors coming out of fixed-income, Krosby told PLANADVISER.com.

She noted the interesting juxtaposition right now, as investors are interested in both fixed-income (generally risk-averse) and emerging markets (high risk). She also said large-cap equity with secure dividends present opportunity in retirement portfolios.