The 4thof July – American Independence Day is of course a time to celebrate in the US.
But is there good financial news to celebrate – and does the rest of the world have reason to join in?
At Continuum, we believe keeping a close eye on the US economy is vital, as it influences not just investment possibilities in US corporates, but the prospects for trade across the rest of the world.
It is nearly two and a half years into his White House term, and at first glance President Trump seems to be embroiled in a trade war that threatens to damage the U.S. economy and sink his 2020 re-election bid. There have been worrying warnings from the Federal Reserve.
Look a little closer at what is really going on, and it seems as though the President is not only at the helm of a thriving economy, but is he setting the agenda for international trade relations.
Good news at home
The President’s much derided campaign to Make America Great Again seems to have been paying off. The US economy grew at an annualised rate of 3.1% in the first quarter of 2019, the US government revealed in review of the Gross Domestic Product (GDP).
This was a substantial increase on the 2.2% growth registered in the fourth quarter of 2018 – suggesting that the growth is not only being sustained but is actually accelerating.
It may not all be plain sailing. Consumer spending, which accounts for about two-thirds of economic activity in the US, grew at an annualised rate of just 0.9 % in the first quarter. Some observers might point at this to suggest that the Trump economy is running out of steam – but others will point out that US consumers will tend to spend heavily in the runup to the ‘holiday season’ and tighten his or her belt in the months thereafter. A first quarter fallback is not uncommon.
In the first quarter, the world’s largest economy grew at the fastest rate for a January-March period in four years.
Good news abroad?
The figures suggest that the promise made by President Trump to get the economy growing at more than 3% during his term may be fulfilled.
This is despite headwinds from the trade war with China. It is of course on the international stage where the real action is taking place. The promise to bring jobs back to US workers was a vote winner but delivering on it would mean upsetting international trading arrangements.
It was a high stakes strategy, and both the US and China stood to lose as a trade war seemed to be escalating. While his advisers might have been pointing out the negatives. Trump resisted the pressures to change his approach. In May tariff rates on $200 billion in Chinese goods increased to 25% from 10%. China then hiked duties of $60 billion on U.S. goods up to 25% on 1stJune.
Signs of a resolution to the problems – and a possible indication that the President had engineered confrontation to build a negotiating position – came last weekend. Presidents Trump and Xi Jinping agreed to proceed with trade negotiations on the sidelines of the G-20 summit in Osaka, Japan.
It was closely followed by the surprise news of a meeting between Trump and North Korea’s Kim Jong-un. A lifting of sanctions and new trade deals could be in the wind.
What about the future?
Last month, the International Monetary Fund revised its 2019 GDP forecast for the United States upward from 2.3% to 2.6% despite the ongoing trade war between Washington and Beijing.
The White House remains confident about the outlook for the US economy – but there are still cautious notes. The Federal Reserve is wary and has ruled out interest rate hikes for the rest of the year, and even indicated that a rate cut may be in the cards. But in general, the US economy is looking healthy, and a healthy America should be good news for the rest of the world.
With Brexit coming, many of us are looking at our investment portfolios, and wondering if some changes are due. It may be time to look at whether the US has opportunities to take advantage of – especially if a post-Brexit US/UK trade agreement may be in the offing.
To discuss whether you may have anything to celebrate, call us at Continuum to discuss your investment plans.
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.
The value of investments can fall as well as rise and you may get back less than you invested.