Economic Outlook – Conditions may soften, which may be good for portfolios

The economy has been stronger than most economists projected this yearMany had expected a recession, but we have seen the opposite, with Gross Domestic Product (GDP) expected to grow 2% in the 3rd quarter. The growth has been due to resilient consumer spending, which makes up 2/3rd of GDP. However, consumer spending may wane as the summer spending spree on concerts and travel comes to an endThere are numerous economic land mines which may finally trip the economy into a recession (2 consecutive quarters of declining GDP) 

There are five economic factors of concern; three are minor, while two are of greater macro concern.  The recent discretionary budget stalemate, resumption of student loan payments and the United Auto Workers (“UAW”) strike pose minor economic challenges.  Hopefully these events do not expand into larger issues.  However, the UAW strike has longer-term implications.  The auto industry has experienced a new threshold as the barriers to entry have been broken by the electric vehicles (EV) manufacturers.  The legacy manufacturers will be at significant disadvantage if they do not have the flexibility to change, which often occurs in mature bureaucratic organizations.  Also, the new budget funding challenge poses a creditability issue with credit agencies and raises the possibility of another credit downgrade.  

Now, considering the longer-term challenges.  First, the price of oil has risen over 30% based on West Texas Intermediate (WTI) benchmark since June that poses an economic challenge.  The increase is due mostly to Saudi Arabia’s decision to cut oil production to increase oil revenues.  Remember many oil producing countries are “not our friends” as has been shown many times throughout history.  Although the U.S. produces nearly all our country’s oil production needs, the global price of oil influences the domestic price.  However, WTI trades about 4% cheaper than Brent crude.  

Chart Courtesy of JP Morgan Asset Management 

With about 50% of oil being used in numerous applications besides transportation, product cost increase materially.  Further, will the Federal Reserve increase interest rates to counter the Saudi Arabia production cut?  This is a key factor in the rise of interest rates and stock market weakness since the July highs.  

The second and most important longer-term economic challenge is the increase in interest rates.  Higher interest rates are damping economic activity and shifting investors’ asset allocations from growth investing to holding cash.  Higher interest rates may be driving inflation higher.  A few examples relate to home ownership and energy.  Higher interest rates have dramatically slowed the home construction industry with 30-year mortgages now at 7.7%, making the housing supply shortage worse and increasing rental rates. Further, the residential solar installations have plummeted as the financing costs outweigh the energy cost savings; These are a few examples of how the Federal Reserve’s high interest rate strategy may be acerbating inflation, not reducing it.  

Looking back since the financial crises (2007-2009), we have been in an era of low interest rates.  Low interest rates have been a significant tail wind for innovations that bring many new products and services to advance society. In addition, it allowed the issuance of Federal debt that is never a problem, until it is a problem.  With the debt rating agency, Moody’s, threatening to strip the U.S of its last AAA credit rating due to poor governance over fiscal affairs, that day may be approaching.  

To sum up the economic outlook, strong consumer spending has carried on better than expected, creating GDP growth in 2023. Looking forward, the tightening credit conditions from higher interest rates, higher oil prices, and other external events suggest a slower growth or economic recession is looking more likely.   Reduced economic activity could cap the increase in interest rates, thus creating a more favorable environment for the bond and stock markets.  


Business Continuity and Succession Plan Disclosure Statement

Andrew Hill Investment Advisors, Inc. (“AHIA”) maintains a Business Continuity and Succession Plan (“BCP”) that has been developed with the goal of protecting the health and safety of our employees and maintaining continuity of service for our clients. Our Plan is designed to ensure that we are prepared to operate through significant business disruptions, so that our clients can access their accounts without significant interruption under most circumstances.
Key elements of our BCP include the following:

  • Critical data from our computer systems is backed up daily to geographically remote, secure facilities.
  • All AHIA employees can access its computer data remotely via secure connection. If AHIA’s primary network is not accessible, AHIA maintains replicas of all files and database servers in a geographically remote disaster recovery network available to all employees over a secure connection.
  • We maintain an office evacuation plan and emergency procedures in the event of a disaster affecting our primary office facilities or surrounding area.
  • We maintain an emergency contact list and procedures updated and distributed on a regular basis.

If your account requires servicing during a significant business disruption and we are unable to assist you, please call Fidelity Investments at 1-800-523-1203 and a dedicated team member will be able to assist you. It is impossible for us to anticipate every potential problem that may occur, but we believe our BCP will enable us to conduct business in the event of a variety of possible business disruptions. We review and test our BCP at least annually and it is subject to modification based on changing circumstances and assessment of need.

As a fiduciary, AHIA has certain legal obligations, including the obligation to act in client’s best interest. AHIA seeks to avoid a disruption of service to clients in the event of an unforeseen loss of key personnel, due to disability or death. To that end, AHIA has entered into a succession agreement with The Colony Group, LLC, effective May 24, 2019. AHIA can provide additional information to any current or prospective client upon request to Andrew D.W. Hill, President at 239-777-3188 or [email protected].

Andrew Hill Investment Advisors, Inc.
Privacy Notice

Andrew Hill Investment Advisors, Inc. (“AHIA”) believes it is essential that we maintain the privacy of the nonpublic personal information provided to us and that we obtain in connection with providing our products and services to clients.  AHIA views protecting its customers’ private information as a top priority subject to the requirements of the Federal Gramm-Leach-Bliley Act.  AHIA has instituted policies and procedures to ensure that client information is kept private and secure. 

AHIA limits the use, collection, and retention of such information to what we believe is necessary or useful to conduct our business and to provide and offer clients quality products and services, as well as other opportunities that may be of interest. Information collected may include, but is not limited to name, address, telephone number, tax identification number, date of birth, employment status, annual income, and net worth. 

In providing products and services, we collect nonpublic personal information about our clients from the following sources: 

  • Information we receive from clients on applications or other forms (e.g. investment/insurance applications, new account forms, and other forms and agreements);
  • Information about client transactions with us or others (e.g. broker/dealers, clearing firms, or other chosen investment sponsors); and
  • Information we receive from consumer reporting agencies (e.g. credit bureaus), as well as other various materials we may use to put forth an appropriate recommendation, or to fill a service request.

AHIA does not disclose any nonpublic personal information about its clients or former clients to any non-affiliated third parties, except as permitted by law.  While servicing a clients’ account, AHIA may share some information with its service providers, such as transfer agents, custodians, broker-dealers, accountants and lawyers.  Additionally, we will share such information where required by legal or judicial process, such as a court order, or otherwise to the extent permitted under the federal privacy laws.  

AHIA restricts internal access to nonpublic personal information about clients to those associated persons of AHIA who need to access that information to provide services.  As emphasized above, it has always been and will always be AHIA’s policy never to sell information about current or former clients or their accounts to anyone.  It is also AHIA’s policy not to share information unless required to process a transaction, at the request of a customer, or required by law.

AHIA places strict limits on who receives specific information about client account(s) and other personally identifiable data. As a rule, we do not disclose nonpublic personal information we collect to others. However, because we rely on certain third parties for services that enable us to provide our advisory services to clients, such as our attorneys, auditors, other consultants, brokers, and custodians who, in the ordinary course of providing their services to us, may require access to information, we may share nonpublic personal information with such third parties. 

AHIA may also disclose such information to others upon a client’s written instructions.  Such written instructions may be amended, and/or rescinded at any time in writing.  If a client prefers that we not disclose confidential personal information about them to non-affiliated third parties who provide a product or service that we feel would benefit them, the client may direct us not to make disclosures to such non-affiliated third parties via an opt-out provision.  We restrict access to nonpublic personal information about clients to those persons associated with AHIA, who need access to such information in order to provide our products or services to clients.  We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard clients’ nonpublic personal information. If a client decides to close his/her account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. 

AHIA reserves the right to change these Privacy Principles, and any of the policies or procedures described above, at any time without prior notice. However, clients will be promptly provided with a current copy of our privacy notice upon material changes or upon request.  Active clients will receive a current copy of our privacy notice at least annually. These Privacy Principles are for general guidance and do not constitute a contract or create legal rights, and do not modify or amend any agreements.   If you have questions about this privacy policy, or if you wish to amend or rescind your written instructions with us at any time, please call us at (239) 777-3188.