Thanksgiving Special – a look at the U.S. economy


Thanksgiving is a national holiday in the United States, and Thanksgiving 2018 occurs today, Thursday, November 22. It’s a long established and much-loved celebration. Back in 1621, the Plymouth colonists and Wampanoag Indians shared their autumn harvest feast. What do their descendants have to celebrate in 2018?
The answer looks as though it is ‘quite a lot.’

A booming economy

The U.S. economy appears to be in a boom. According to the International Monetary Fund, the United States economy is projected to grow by 2.7% in 2018.
Why is this growth happening? There may be several causes.
The first is low interest rates. The Federal Reserve kept rates near zero for almost a decade after the financial crisis. That lowered borrowing rates for corporations and mortgage borrowers, which tends to support investment.

The second may be low taxes. President Trump ordained a massive reduction in the corporation tax rate from 35% to 21% to stimulate business investment and growth.

A third is that the current boom is simply the recovery from the Great Recession. Business investment might be reaping stored-up demand as confidence returns. Consumers and businesses are buying again – although housing, which was the centre of the crash has still not recovered.
It’s even possible that there’s no boom at all, and that this is just how the US economy works under normal circumstances. It has been feeling the results of the recession for so long we have all forgotten what it is like.

Is it all down to President Trump?

The President will, of course, claim that any boom is down to his policies.
Along with corporation tax cuts, his focus on bringing jobs back to US-based factories, cutting red tape and promises of infrastructure investment have all helped increase economic activity.
It’s true that growth in GDP, the value of goods and services in the economy has been dramatic, reaching 4.2% for the second quarter of 2018. This does appear to be the best for several years, but 4.9% was achieved in the third quarter of 2014. The President also has highlighted the rising value of US financial markets – in particular, the Dow Jones Industrial Average. This index, of the top 30 corporations has reached record highs under his administration.

A careful look at the figures might suggest that the performance is actually due to a recovery that began during the Obama years.

The President prefers not to talk about rising trade tensions with China or his decision to ditch the Trans-Pacific Partnership (TPP) trade deal, both of which could put a dent on any boom.

A feelgood factor

The chances are most American families will not be debating the causal factors behind economic recovery as they sit down to their roast turkey and pumpkin pie. They may be talking about the effects.
Unemployment is low, which means labour shortages, which should lead to pay rises.
The Bureau of Labor Statistics has reported a growth in production and transportation jobs. There are signs that wages are finally picking up for blue-collar workers.
Meanwhile, those with investments or pensions on the stock market will be looking at the performance of Wall Street which despite some recent falls is enjoying steady growth.

There are still the old problems in American society. Issues of race and inequality have not gone away. But overall, for most Americans, there should be plenty of reasons to raise a glass in their Thanksgiving toast.

If you would like to discuss whether US funds could have a place in your portfolio, get some expert advice from your Continuum team.

The value of investments can fall as well as rise and you may get back less than you invested.

The Financial Conduct Authority does not regulate deposit accounts. 

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

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Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.

Sources:
bloomberg.com – Why the U.S. Economy Is Having a Boom – 31st August 2018
washingtonpost.com – U.S. economy to grow 2.7 percent in 2018, boosted by Trump tax overhaul – 22nd January 2018

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