US Economic Growth Could Surprise Everyone

US Economic Growth Could Surprise Everyone

over 3 years ago2 mins

The American economy may have only just experienced its sharpest quarterly contraction in history – but if one interesting indicator is to be believed, economic growth could rocket back beyond most forecasters’ wildest dreams 🚀

What does this mean?

On an annualized basis, the US economy shrank 31.7% in the second quarter of 2020 compared to a year before. A revised reading showed the fall in “gross domestic product” (GDP) wasn’t quite as bad as initially thought – but it was still by far the worst on record. The second consecutive quarter of negative growth also marked the advent of recession.

Last quarter’s US GDP growth rate was the lowest since at least 1947
Last quarter’s US GDP growth rate was the lowest since at least 1947

While analysts expect third-quarter growth to come in at a record high of around 20%, the US Federal Reserve estimates that the economy will end 2020 having shrunk by 6.5% overall. Official estimates are that growth will then hit 5% in 2021 before settling down at an average annual rate of around 4% until 2030.

But investment research firm Leuthold Group questions that view. In new research this week it points out that, since 1955, a ratio of the US household personal savings rate to the country’s unemployment rate has moved pretty closely in line with the annualized average GDP growth rate over the subsequent decade…

Why should I care?

The savings/unemployment rate ratio rose rapidly during the 2010s. Based on its historical parallels with subsequent GDP, pushing this data forward by 10 years (or 40 quarters) suggests that US economic growth could end up around 8% by 2030 – double what economists expect.

Source: Leuthold Group
Source: Leuthold Group

The historic synchronicity may be due to savings rates’ reflection of future demand growth and unemployment’s reflection of resource availability; their ratio, in other words, provides an estimate for US economic demand relative to supply. When it’s high, future job creation and rising incomes may look more likely.

If – and it’s by no means certain – the relationship to GDP growth holds, then a booming economy should, all else equal, lead to companies’ profits and stock prices increasing, benefiting those invested in American shares. Still, unemployment is historically high at present. It’s complicated, but reducing this could lead to inflation shooting up – eating away at the “real” value of all that tasty economic growth 🤔

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG