For the first time in more than 50 years, export sales and business investment in plant, equipment and technology are the major drivers of economic recovery, outpacing consumer spending and housing – a trend that is likely to continue for several years, according to a recent report from AllianceBernstein.
This represents a major shift in the US economy, which traditionally has been dominated by consumer spending – and IROs will have to understand where their companies stand in relation to this shift. ‘The dynamics of US economic growth [are] changing dramatically,’ argues Joseph Carson, chief economist at AllianceBernstein, in the report.
In ‘New mix growth story is intact’, Carson points out that during the first 18 months of the current recovery, consumer spending and housing contributed 1.9 percentage points to GDP growth, a little more than half the historical average. By contrast, business investment and exports have contributed almost twice the historical average over that same period, adding 3.2 percentage points to GDP growth.
Carson adds that growth in capital spending and exports for 2010 posted their strongest performance since 1984 and 1988, respectively. ‘These changes will have important implications for investors as capital flows back toward the more productive segments of the US economy,’ he says.
Speaking with IR Magazine, Carson describes the forces driving this new mix. ‘For the first time in history, emerging markets led the global recovery,’ he says. Because they weren’t weighted down by the twin housing and banking crises, their economies have contributed ‘on a scale equal to the US… and are growing much faster.’
Carson has argued for more than a year that the US would benefit from emerging market growth. Pointing to a ‘very competitive manufacturing sector’ that has become even more cost-competitive with a weaker dollar, he says the trend is likely to continue. Furthermore, the ‘huge shift’ in government policy – with the Obama administration goal to double exports to $2 tn by 2015 – will likely add to the momentum.
Business investment is starting to flow into ‘America’s huge aging capital stock’ where the average age is the highest since World War II. Carson cites recent announcements of major capital spending at Union Pacific, Intel and Ford Motor as evidence of this, and says he expects more in the coming weeks.
Those three factors – emerging market growth, export expansion and capital investments – will drive US economic growth for the next three to five years, Carson predicts. ‘I think this can go along for a long time,’ he says. ‘Emerging markets are growing faster, the export pie is growing faster and US firms are well positioned to take advantage of that.’
