The US revisited
Author: Cathy Dixon, investment director
This article previously appeared in the Irish News in November 2011
Attention has been focussed firmly on the Eurozone for a few months now, with every week bringing new developments. This weekend has seen a recurrence of unrest in Egypt and indeed an upturn in problems in Syria. The world seems to be a very troubled place at present but it isn’t all bad news.
The largest economy in the world is still the US by some margin, despite frequent predictions that it will soon be overtaken by China. With all the traumatic events that have taken place this year, it is easy to lose sight of the fact that the US market is higher now than at the beginning of the year. It opened at around 11577 and it now stands at just under 11800 (in terms of the Dow Jones Industrial Average). This masks a great deal of volatility, as it has reached as high as 12800 in May and plunged briefly to 10400 at the beginning of October.
In recent weeks all the headlines in the investment world seem to be about Europe, but as the first economy to have headed into choppy waters, it is worth taking the time to see how things are going in the US. The picture is more upbeat than might have been expected. Recent figures have shown spending growth accelerating: retail sales in October rose by 0.5% month on month and underlying sales also rose by 0.6%. It has been pointed out that the savings ratio has fallen, so that at least part of this rise is at the expense of saving. However, the critical time for consumer spending is seen as “black Friday” which is the day after Thanksgiving – this Friday, 25th November – which is thought to mark when retailers move from the red into the black. A more recent development is “cyber Monday” – (Monday 28th), thought to be a critical time for on-line sales. This may give us a better idea of the sustainability of the upturn in spending. There are also indications of a rise in consumer confidence, the Michigan measure shows a rise in each of the last four months.
In addition, US manufacturing continues to be rather healthier than the European picture: there was a rise of 0.5% in October. All this bodes well for economic growth in the fourth quarter: after a surprisingly good figure of 2.5% in Q3, there were fears that it would fall back sharply, but so far the indications appear reasonably positive, with predictions generally around 2%. The labour market is seeing small signs of improvement and the latest inflation figures seem to indicate that the headline consumer price index has passed its peak (3.5% in Oct) and should see a decline from now on.
It is almost daunting to hear positive economic news. With so much negativity swirling around the world, it is hard to hope for anything more positive, but anecdotal evidence indicates a more positive outlook from US companies. Perhaps it is time to revisit the “old” economies as well as looking at the less developed ones?
Cathy Dixon
Director
Investment management
T: 028 9072 3000
This does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of Cunningham Coates Stockbrokers.
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