Does a strong stock market equate to a strong country? Part One of TwoSubmitted by Headwater Investment Consulting on July 27th, 2017
By Kevin Chambers
Since March of 2009 the US stock market has been on an almost unprecedented “bull run.” It is the second longest upward climb of the S&P 500 since World War II. The run up to the 2007-2008 crisis was 60 months; this market has been up for over 100 months. For 2017, the market has beaten expectations and continued the rally (Wieczner, 2017). Compared to the rest of the world, the US stock market has pulled away. While the health of our economy is not necessarily tied to the success of the financial markets, there are several key economic indicators that can show us the relative strength of the US economy. By looking at how the US stacks up against other major countries in regards to GDP, unemployment, productivity, inflation, and government debt, we can better assess if the financial markets are reflecting the trust state of our economy.
We will break this into two parts: Let’s look at how our economy is stacking up with the rest of the world when it comes to GDP, unemployment, and productivity; then come back next week when we explore inflation and government debt and draw our conclusions.
The US has the biggest economy in the world. The European Union as a collective is the second largest economy, followed by China. Germany and France as individual countries are the 4th largest and 6th largest, respectively. The European Union was larger than the US for most of the last decade, but the recent troubles with the Union have caused it to drop off. US GDP has been growing at 1.9% annually for the last 5 years, which is similar to the growth of the UK economy. Of the major developed global economies, only Australia, growing at 2.6%, beats the US and the UK. China, still considered an emerging market regardless of its size, has been growing at 7.5% over the same period. Looking at the same group of countries, the US has the largest GDP per capita.
The United States ended 2016 with an unemployment rate of 4.9%. Similar to GDP growth, the UK essentially matched the US. Japan had the only significantly better rate at 3.1%. The EU was at 8.6%. In fact, the EU has had an elevated unemployment rate since 2007. Although most countries saw an increase in unemployment around the global credit crisis, most have recovered. The US and UK Have fully recovered to pre-crisis levels. Canada and the EU have struggled to recover. The US also has the highest standard of living based on income per capita. The average American earns $48,700 a year. This is compared to $44,300 in Australia, $37,400 in the UK and $26,500 in the EU.
We are measuring productivity by GDP per hour worked. Labor productivity can be only partially explained by the ability of workers, it also reflects the quality and age of machinery, capital, technical abilities, and other factors that make workers more or less productive. Productivity in the US has been increasing every year since 2007. The US productivity, when compared to GDP, is one of the highest in the world. The rest of the developed world is clustered between $40 and $50. The United States has remained around $60.
Return next week for a deeper look into economic indicators, including inflation and government debt.