- U.S. economy has been resilient despite challenging headlines
- Investors may have to readjust U.S. GDP growth expectations
- Average 12-month U.S. GDP growth has been slower post-2008 vs. prior two business cycles
- Slow growth doesn’t mean ‘broken’ economic growth
Apple recently released a new marketing campaign that features an iPhone standing affixed in a wind tunnel where it’s repeatedly pummeled by various items like toys, food and other everyday household objects. Despite the repeated blows, the phone continues to function. As the commercial concludes, the words ‘it’s tough out there’ display on the screen.
Recently, U.S. GDP has felt a lot like that phone. Despite a pummeling of headlines, including a seemingly endless trade dispute with China, a slowdown in the manufacturing sector, a recently opened impeachment inquiry and competing economic data, the U.S. economy has continued to expand, in spite of what feels like constant fear of recession.
It’s hard not to wonder if these concerns are being subconsciously stoked by economic growth expectations that are too high and not reflective of the underlying reality we’ve experienced since 2008. In the chart below, we highlight this disparity by plotting 12-month U.S. GDP growth since 2008 (solid blue line) vs. average U.S. GDP growth from 1990 through 2007 (solid green line). The dashed blue line reflects average U.S. GDP growth since 2008.
Simply put, for much of the past decade ‘it’s been tough out there.’ We can see in the chart that 12-month U.S. GDP growth since 2008 (solid blue) has often struggled to reach even the average growth experienced during prior business cycles from 1990 to 2007 (solid green). The vast difference in pre-2007 and post-2008 average GDP growth rates can also be easily observed by comparing the dashed blue line (average GDP growth since 2008) to the solid green (average GDP growth 1990-2007). However, since the Great Recession of 2008, the US economy has been resilient, overcoming numerous economic concerns: European debt crisis (2010-2011), the end of quantitative easing in 2013 (aka taper tantrum), contracting corporate earnings and Chinese economic concerns (2015-2016), and the recent US/China trade dispute (2018 – ??).
Looking forward, all eyes will likely be on the U.S. consumer for signs of weakness or continued strength. Third quarter GDP, due to be released later this month, is currently expected to show the economy grew between 1.5% and 2.0%. While it’s possible such a growth rate may be touted as disappointing in financial media, the reality is GDP in that range would be about average for the past decade. For investors, while it may seem ‘tough out there’, there remains a distinction between slow vs. ‘broken’ economic growth.
As always, we continue to believe in a diversified investment approach. Our Investment Team is always available to address any specific questions you may have.