The U.S. economy, now growing faster than in much of the rest of world, is good news for financial markets.
Abby Cohen, a senior investment strategies and president of the of the Global Markets Institute at Global Sachs’ Global Investment Research unit, delivered this positive assessment at the Insured Retirement Institute’s IRI Marketing Summit in New York on March 24. The two-day conference examined current issues and trends impacting the life insurance industry.
“We don’t foresee another recession in the near future — only continuing growth,” said Cohen. “U.S. stock prices now exceed 2007 levels. And the average S&P 500 stock is now trading at 17 times earnings.”
Goldman Sachs’ Economic Research unit forecasts that U.S. gross domestic product this year will grow to 2.8 percent and 3.2 percent in 2015. The chief contributors to GDP growth are residential fixed investment and business fixed investment, which are expected to increase by 5.6 percent and 6.5 percent, respectively this year; and by 12.4 percent and 6.8 percent in 2015.
In contrast, government spending remains a drag on the economy. Goldman’s research unit anticipates this sector will contract by 3.0 percent 2014 and 1.4 percent in 2014. Personal consumption, still the largest component of GDP, will rise by only 2.5 percent and 2.8 percent, respectively, this year and next.
“The U.S. growth rate puts us near top of the pile among most economies worldwide,” said Cohen. “It’s still a good time to be investing in financial assets.”
“Residential investment — new housing construction — was in recession more than a year before the financial crisis,” said Cohen. “But it has been growing well since end of recession. Demand for housing is increasing.”
Cohen highlighted other indicators that reflect an improving economic situation in the U.S. six years after the Great Recession. Among them: declining consumer debt service payments as a percentage of disposable personal income (now about 10 percent); and rising spending on information technology. Three-quarters of companies surveyed by Goldman Sachs last January are planning to invest as much this year, if not more, in IT.
She noted also that the U.S. exports, which now total $527.1 billion, represent the “fastest growth sector” of the U.S. economy. One-third of the exports go to Canada (18.9 percent) and Mexico (14.4 percent); the European Union (16.6 percent), Central/South America (11.7 percent) and China (7.8 percent) are among other America’s other top importers.
Cohen explained the robust exports by noting that:
- The U.S. continues to produce goods and services not available elsewhere; and
- High quality U.S. goods in particular remain much in demand worldwide.
The growing economy has not generated, however, a commensurate increase in employment. “It has taken almost [five years] to restore the economy and markets to pre-recession levels,” said Cohen. “Our GDP is higher, but we’re producing goods and services with fewer workers.”