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The US Economy: Better Than the Rest?

21 March 2014 in Trading Ideas

Recent positive developments in the US economy take on an even rosier glow when one considers the struggles elsewhere in the world’s economies.

Earlier this week, for example, we received a report that the US current account deficit dropped to 2.3% of GDP last year, hitting its lowest level since 1997, as the US energy boom and growth in services and exports helped shrink the trade gap.

As the Financial Times reasoned, the figure’s decline could raise hopes that the US economy is moving toward a more balanced structure that is less dependent on domestic demand and more reliant on exports and investment.1

That news followed news that the US GDP grew 2.4% in last year’s fourth quarter, and was expected to grow just below 2% in the first quarter.

While those figures aren’t to be confused with eye-popping growth there were more positive recent development consumer sentiment, regional factory activity and housing suggested some economic thawing, which should put growth on a stronger path later in the year.


And for investors, it’s all relative isn’t it?

If those numbers are unimpressive, consider the news earlier this week that eurozone consumer price inflation was 0.7%, taking the annual rate down to its lowest level since October, which was the lowest level since late 2009.2

As the Associated Press pointed out, the figures are likely to reinforce concerns in the markets that the eurozone risks suffering a bout of deflation, or falling prices.

In China, the rate of economic growth is at a higher level, but the rate of growth is slowing, which isn’t a terrific mix considering some of the other risks that nation faces.

As George Magnus pointed out recently in the Financial Times, “the incidence of financial distress is rising and becoming more visible.” The recent drop in the renminbi, and the sharp fall in copper and iron ore prices are the “latest high-profile manifestations of China’s changing outlook.3

In addition, Magnus mentioned, in the first two months of 2014, industrial confidence and output indices, retail sales, fixed asset investment and credit creation were all weaker than expected.

And what of Japan, where the bold “Abenomics” program of Prime Minister Shinzo Abe has been in the works in an attempt to revive that country’s moribund economy?

The recent data isn’t great: Earlier this month, we learned that Japan’s economy grew even more slowly than initially calculated in the final three months of 2013 and posted another record current-account deficit in January, poor figures suggest the economy could be in for a rocky period, according to the Wall Street Journal.4

Economists had until recently been expecting solid growth in the months before a downturn that is likely to hit when the sales tax is raised in April to 8% from the current 5%. That’s right, Japan’s economy is expected by some to get even worse before it gets better.

This relatively optimistic view of the American economy has also seemed to benefit stocks of companies that derive all of their revenue from the US. The All American motif has increased 4.5% in the past month. The S&P 500, in that same time period, has gained 1.3%.

In the past 12 months, the motif is up 17.8%. The S&P 500 has risen 21.9%. While a recent trend does not provide assurances of things to come, the recent home cooking has help satisfy domestic-centric investor appetites.

1James Politi, “US current account deficit falls again,” FT.com, March 19, 2014.

2Pan Pylas, Associated Press, ” At 0.7 percent, eurozone inflation slips further below the European Central Bank’s target,” March 17, 2014, http://www.startribune.com/business/250584431.html.

3George Magnus, “China’s Financial Distress Turns All Too Visible,” FT.com, March 19, 2014.

4Takashi Nakamichi and Mitsuru Obe, “Japan GDP Growth Revised Down,” WSJ.com, March 9, 2014.