Despite economic concerns over issues such as inflation and rising interest rates, geo-political tensions and hostilities, the world’s largest economy has just had its gross domestic product growth revised up to 5.2% for period from July to September 2023, according to the Daily FX website.
The Financial Times (2023) initially reported the story at the end of October as attributable to ‘strong consumer spending [being] the main driver of a 4.9% annualised increase in gross domestic product, according to the [US] Commerce Department’s Bureau of Economic Analysis’. It added further market commentary from Alliance Bernstein that, ‘the underlying story is of a resilient consumer supported by a strong labour market,’ and ‘as long as the consumer remains strong, the economy as a whole will,’ (FT,2023).
BEA (2023) records the current dollar value of US GDP for November 2023 at a massive 27.64 trillion. That’s economic resilience on an impressive scale since the emergence of the world economy from the pandemic. However, as ever, economic risks and headwinds persist notably consumer and government debt levels, diminishing effects from pandemic-era stimulus and wage increases tapering off. There are also questions about how these figures are calculated or adjusted which cause technical debates amongst economist and pundits.
Nevertheless, the US in comparison to major economic blocks, such as EU and China or G7 nations like the UK, in terms of gross domestic product growth rates, are ahead by a county mile with India currently placed 2nd in the Trading Economics G20 table for growth rates for 2023.
The October blog discussed the concerns over higher for longer interest rate policies. However, with inflation reportedly on the wane in the US and elsewhere- it’s reasonable to assume from mid-2024 that rate easing could resume. This would certainly address a major concern over interest-rate payments on US$25 trillion of outstanding Treasury bills which inhibits the ability of the US Federal Government to allocate funds for defence commitments, Medicaid and Medicare spending, pension provision, climate initiatives, infrastructure, and regional assistance programmes.
However, regardless of interest rate cycle turning the issue of the Federal Government addressing debt issuance with the total government debt close to 100% of GDP plus of-balance sheet liabilities, which also face other countries like the UK, France, and Italy, needs to be addressed by someone responsible or brave enough.
Notably, with eleven supercarriers to maintain and NATO still needing the US to provide most of the weapons required by Ukraine in the war with Russia all such issues will become significant to the new US administration due after the November 2024 US presential elections. This shall be the political event of the year as whether Joeseph Biden or perhaps Donald Trump returning for a second term as the oldest ever president.
The outcome will not only shape US domestic and international foreign policy but have a dramatic effect in markets too. Any unfunded tax cuts or reductions to spending programmes or political support to allies in Europe, middle East or East Asia would cause upset and uncertainty to which markets would react badly and US-Allies left without their guarantor or peacemaker.
Will NATO, or the EU step into any possible US step-back from its military or economic commitments or could China or Saudi step in? With Trump back he may be not fussy either way.
With 2024 just a few weeks away and worries over interest rates and inflation seemingly more benign, markets could have a Christmas or New Year’s celebration. However, as ever plenty risk remains close-by, that could make any 2024 market optimism rather short-lived.
Do your own research, of course, but Little Deal Clincher intends to hang on in 2024.
Merry Christmas.
LDC.
References and Further Reading-
Bureau of Economic Analysis, (2023) ‘Gross Domestic Product (Second Estimate) Corporate Profits (Preliminary Estimate) Third Quarter 2023’ Bureau of Economic Analysis, Maryland, USA. Available online: Gross Domestic Product (Second Estimate) Corporate Profits (Preliminary Estimate) Third Quarter 2023 | U.S. Bureau of Economic Analysis (BEA)
Daily FX, (2023), ‘US Q3 GDP Revised Up To 5.2% as Gold Remains Unfazed, DXY Bounces’ by Z. Vawda, Daily FX LTD (provided by IG). Available Online: US Q3 GDP Revised Up To 5.2% as Gold Remains Unfazed, DXY Bounces (dailyfx.com)
Financial Times, (2023) ‘US Economic Growth Accelerated to 4.9% in Third Quarter’ by N. Megaw and K. Duguid, The Financial Times Ltd 2023. Available online at: US economic growth accelerated to 4.9% in third quarter (ft.com)
Trading Economics, (2023) ‘GDP Growth Rate by Country,’ Trading Economics Ltd 2023 UK. Available Online at: GDP Growth Rate by Country (tradingeconomics.com)