Where's the Growth?
12/01/2014 12:01 am EST
MoneyShow's Jim Jubak takes a look at the global economies on an absolute and relative basis to find the best place to invest.
For the week ahead, let's take a moment and contemplate exactly how strong US economic growth is on a relative and absolute basis. If the US was growing at just 2% per year, it would still look incredibly strong against, say, the European economy which is on a verge of recession. The Japanese economy seems to be growing 1% or less. Two percent would look really great but the U.S. isn't growing at 2%. In fact, it's growing at close to 4%. The revision for third quarter GDP pushed growth up to 3.9 from an earlier 3.5% on the first read. Economists expected it to actually slip back to 3.3, but no, we got something closer to 4%. Put that together with the 4.6% we had in the second quarter and you have the two strongest back-to-back quarters since well before the financial crisis. In fact, you have to go back all the way to 2003 to find another period quite as strong.
It's not that there aren't any weaknesses in this number. We did see most of the growth, the change, the improvement from the first revision to the second revision in third quarter came from a less than expected drop in inventories. If you looked at real sales growth, you didn't see a hole, which is the number that takes out inventories. You didn't see the same kind of shift that you saw when you looked at the overall GDP number, but you still saw a move from 4.1 to 4.2, which is an extraordinarily strong number for sales growth.
The one thing that would concern me is that on revision, the growth in wages and earnings, that's personal income for most of us, was cut in about one-half. That had dropped by about 50% from the first read to the second read. That means we're getting about $50 billion worth of more money in people's pockets to spend. It's really good considering that that's not all that strong, that we're getting a pretty big boost from lower gasoline prices. I wouldn't worry about that yet but it's not a good trend.
If you look forward, I think one of the things that people are going to do as they look around the world, they say well, where's the growth. Where's the possibility of stock prices moving up? Where do you want to have your money? Where is the currency? All those suggest that the dollar and the US stock markets are still the places to be. At some point, they get to be too expensive and we get a correction but on the other hand, the longer you get that relative outperformance from the US and the rest of the world, the longer you can go with your stocks moving up even though they might look expensive on an absolute basis.