After contracting in the first quarter of 2014, GDP rebounded a strong 4.6% in the second quarter, and recent data points to continued, if lesser, growth in the quarter just ended. This confirms our belief that the slowdown in the first quarter was likely weather related.
Many factors contributed to the improvement in economic activity. First, unemployment is now down to 5.9%. Many investors may be surprised to learn this is actually slightly below the long-term (50 years+) average of 6.1%. Almost nine million jobs were lost in the Great Recession, but over 10 million have been gained since. Total household net worth hit a new all-time high during the quarter, and now stands over 20% higher than the previous peak in 2007. Household debt service ratios remain low (this measures the percent of income required to service one’s debt), and this is pushing auto sales (see chart) and housing starts back closer to historical levels. Businesses are again investing as well, and returning billions of dollars to shareholders in the form of dividends and share buybacks.
Economic growth globally is more sanguine, and is hovering around 2% for the developed markets and double that rate in the emerging markets.
These divergent paths of growth between the U.S. and the rest of the world have led to a surge in the U.S. dollar, relative to global currencies. Most of the world’s central bankers are keeping their interest rates low, while the Fed is widely expected to begin pushing U.S. rates higher next year. Most economists expect more of the same, with the U.S. growing faster than Europe for some time.
Other articles that appeared in the 3rd Quarter issue of Your Family CFO Report include Investment Management and Asset Class Summary. Please call us anytime with questions at 404-874-6244 and feel free to pass our message along to friends.
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