Fox-Trot Economy

A "fox-trot economy" refers to a pattern of economic growth where periods of rapid expansion are followed by periods of slow growth. Economic growth occurs when an economy's ability to produce more goods and services increases from one period to the next, which can result from such things as more workers entering the workforce or advances in technology.

This ability to grow an economy and create economic growth can occur rapidly or more slowly, and may even decrease. Although there are no concrete rules that accurately predict exactly how an economy will grow, patterns of economic growth have been seen over time, and the fox-trot economy is one such pattern.

The term is based on the popular fox-trot ballroom dance. In a well-known version of this dance, participants complete steps in a pattern of two fast steps that are followed by two slow ones. An economy that goes through a period of fast growth followed by a period of slow growth, while still showing overall growth throughout the cycle, mirrors the fast-step, slow-step movements of the fox-trot, as the dancers continue to move throughout the dance. The term "fox-trot economy" is attributed to investment strategist Jeffery Saut, an executive at Raymond James. He coined and popularized the phrase in the early 2000s to describe economic growth at the time.

A fox-trot economy can be challenging for investors. Rapid growth followed by more tepid growth may cause companies to cut payroll, even though the economy, in general, is growing, albeit at a slower pace. Likewise, demand for borrowing and lending affects an economy's interest rates, and as economic growth slows and companies borrow less, interest rates may decline, leaving savers with a lower rate of return. The loss of return on savings and the decline in jobs may impact demand for goods and services from an economy's citizens, thus reducing corporate earnings, which may exhibit higher volatility than is typical over a normal business cycle with level economic growth. Although the expectation in a fox-trot economy is that economic growth will pick back up again, identifying the timing of the return to rapid growth is challenging.

Learn more about the myriad factors affecting an economy's interest rates here.