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Wednesday, May 14, 2014

Fitch Ratings Report Suggests Independent Economic Growth



Fitch Ratings released a report entitle Mapping a Subpar Economic Recovery: What Can History Tell Us? that details the differences in historical economic recovery and growth.  They analyzed various recoveries in countries like Germany, U.S., U.K, and Japan and found similar trends that define these recoveries. Many of the eras of recovery saw the wealth effect, lower inflation and interest rates, higher government spending, new technology, changing consumer preferences, global competitiveness, trading relationships and currency effects. Today’s recovery has some unique differences that challenge basic economic assumptions. 

Interest rates are at historic lows and have been for some time. It is not believed that continued low interest rates will add much more to the economy. The same can be said of the stimulus policy. Each of these naturally has an influence on growth but can become increasingly burdensome after their initial shock impact.  

Exports often rise during a recovery and some small signs of growth are spurting upwards but are not yet conclusive enough. There have been some indications of growing health in the global economy but many developed nations do not yet appear to be sucking in American products. The trade deficit is still in the negative but has improved slightly indicating a potential better market.

The stock market has outperformed expectations and is doing better than during many other recoveries. They are at triple the level of recession bottom and there is some indication that growth will continue. Stocks are a sign of investment and wealth generation that help show that company positions are growing. 

Manufacturing within the U.S. is growing as more companies return to home soil. The increase in productivity, technology, and energy costs is helping to drive growth in this sector. The authors cannot state conclusively whether or not growth will continue but do highlight that services seems to be a bright spot and lower energy production costs seems to be making its way into the economy from a macro perspective. 

The report is inconclusive as the nature of economic forecasting can be a little like looking into a crystal ball or throwing darts onto a map to determine the best vacation spot. However, after reviewing the report you can see that there is a slight upswing in each of the sections such as share price, home values, manufacturing, and exports. The interest rate is slightly rising and government spending appears to be moving downward while unemployment is declining. The higher stock returns and improvement in home based manufacturing are extremely important in supporting long-term investment and growth. It is often the multiple markers of upward trends that hint to a possible re-emergence of the American economy based upon its fundamental merits.  

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