Weathering global storm, U.S. economy stays afloat
For much of 2018, U.S. economic growth has been muddled by concerns of a weakening global economy. In today’s globalized economy, economic weakness among the world’s powerhouses and key U.S. trading partners – such as China, Canada, Mexico and the European Union (EU) – tends to find its way back to American shores.
It is estimated that nearly 44 percent of all sales and 18 percent of all revenues for corporations in the S&P 500 Index are derived from foreign countries. The S&P 500 Index is comprised of 500 U.S. corporations and captures approximately 82 percent of the total U.S. stock market value. It is considered the best single gauge of the U.S. stock market and often a proxy for the health of the U.S. economy.
But last week, additional concerns were raised on the strength of the broader global economy. In 2018, China – America’s No. 1 trading partner and the world’s second largest economy – had an economic growth rate of just 6.6 percent, its slowest pace in 30 years. On Monday, China announced its economic growth in 2019 could reach a low of just 6 percent.
On Thursday, the 28-nation EU – which accounts for 21.7 percent of the world’s economic growth – slashed its 2019 economic growth forecast. In 2017, the combined EU economy grew by 2.4 percent. In 2018, by 1.9 percent. This year, economic growth is projected at just 1 percent.
For our Canadian neighbors to the north – who possess the world’s tenth largest economy and are America’s No. 2 trading partner – the economic outlook is equally as grim. From a 3 percent growth rate in 2017, Canada’s rate of economic growth plummeted in 2018 to 1.8 percent. For 2019, economic growth is forecast at 1.7 percent.
Mexico, America’s No. 3 trading partner and fifteenth largest economy, reported a 2 percent economic growth rate in 2018. This was the slowest pace of growth since 2013 and the fourth consecutive year of declining growth. For 2019, its projected rate of growth has been cut in half, to just 1 percent.
Despite the economic bludgeoning much of the global economy has faced, the U.S. economy has been highly resilient in absorbing the impact. In 2016, U.S. economic growth was an anemic 1.6 percent. In 2017, it rose to 2.2 percent. Last year, the American economy grew by 2.9 percent. For perspective, in the eight years that followed the 2007-2009 Great Recession, America’s economic growth rate averaged a rather paltry 2.175 percent.
America’s economic resurgence has been driven by consumer spending, the cornerstone of U.S. economic growth. Consumer spending accounts for more than two-thirds of all economic activity. But it has also been aided by strong business investment. Non-residential fixed investment – the big-ticket purchase of factories, equipment and intellectual property – has surged in recent years. In 2016, the annual growth rate for these purchases was just 0.5 percent. In 2017 and 2018, the growth rate was 5.3 percent and 7 percent, respectively.
This year, the U.S. economy is still expected to grow, though at a slightly slower pace. Make no mistake, the U.S. economy will face its share of challenges – primarily from a weakening global economy. Yes, a final resolution to the U.S.-China trade dispute should provide some relief. But this economic pandemic goes well beyond this toe-to-toe feud between the world’s two powerhouses. A global economic slowdown could last for years. But so far, the U.S. has weathered the storm.
Mark M. Grywacheski, Investment Advisor
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Quad Cities Investment Group, LLC is a registered investment advisor with the U.S. Securities Exchange Commission.
