The economic forecast for this year and for the balance of the decade is rather glum. Many economists have projected a two percent growth in GDP will become the norm for the next several years. This scenario is supported by the fact that 24 million Americans are out of work and millions more are underemployed or have given up looking for a job, corporations are reluctant to invest in their businesses until there is a more visible sign that a sustainable recovery is under way and the US government seems incapable of reaching far-ranging agreements on the financial management of the country. Real gross domestic product -- the output of goods and services produced by labour and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012, certainly not a number that would instill confidence that America is turning the corner. Looking at the past several years, it is easy to support the thesis that we should expect to see more of the same in the future.
But America doesn’t seem to be buying into the low growth scenario. Here is why.
- The stock market, a leading indicator of economic activity, has almost doubled since March 2009. Investors poured $11 billion into U.S. equities in the first two weeks of 2013, the biggest gain since 2000. The market is telling us that there are better days ahead.
- Over the next 5 to 7 years, America is expected to achieve energy independence and will no longer be dependent on foreign energy sources.
- A strong housing market gained momentum in November, 2012 and is expected to continue through 2013, especially with low mortgage rates, which will keep affordability high, according to the BBVA Compass. The Housing Market Index rose to 46 compared to 41 October, which is the highest level since 2006. The jump is a result of homebuilder’s confidence in the housing market. New home sales and construction are expected to continue on a strong trend throughout the remainder of the year.
- A healthier economy and more model introductions should push U.S. auto sales above the 15 million mark this year, predicts the Polk research firm. Auto sales should continue to lead the country's economic recovery, rising nearly 7 per cent over 2012 to 15.3 million new vehicle registrations.
- Another tech boom is under way with consumers migrating to tablets, smartphones and social media. America is strong in these areas and Apple, a key player, has recently signaled that it plans to perform some if its manufacturing in the United States.
- The United States may be in the early stages of recapturing a significant piece of the manufacturing production that fled to Asia over the previous couple of decades. This is being driven by three factors. Wage rates in the U.S. are depressed, while labour costs in China are rising. The surge in oil prices is making it more expensive to move goods across oceans and the shale gas boom in the U.S. has dramatically lowered the cost of powering a plant. U.S. productivity rates are among the best in the world. According to the Boston Consulting Group, the U.S. economy is poised to add between 2.5 million and 5 million jobs over the next decade as result of increased factory production (700,000 to 1.3 million actual factory workers and the rest from supporting services).
- U.S. employers added 157,000 jobs in January 2013.
Jeffrey Saut, the chief investment strategist at Raymond James, has suggested that if we look at the combined impact of all of these developments, we may be witnessing the early signs of a new long-term bull market. Time will tell. Low interest rates will not last forever.
One thing has been strangely missing during the first five weeks of 2013. While President Obama has been pushing hard for immigration reform and new gun laws, two very important initiatives, he has said very little about any legislation aimed directly at economic growth. Perhaps we will hear some of his plans during this week’s State of the Union report. Certainly the President’s leadership in areas such as infrastructure development, education and training (retraining), debt reduction and a sound budget would go a long way towards powering America in this direction. This was one of the key elements of his election campaign. Now is the time for the President to step up and lead his country and the free world to a strong and sustained economic recovery. Based on the trends above, he has the option of being a leader or a follower. Let’s see which path he chooses to take.