US Boom Creeps Towards Setting A Record

Lisa Smith, BA (Hons), CeFA

Financial experts are closely watching the US as the expanding economy is approaching new records.

The US economy has not faltered since 2009 – a run of 101 months.

This boom time has only recently been exceeded twice, says investment firm Schroders.

The longest expansionist run was 120 months which ended with the dot com crash in March 2001,

Before that, investors must look back to the 1960s for a 106-month run.

“Economic expansions do not usually die of old age, but it is hard to refute the idea that the US upswing may now be entering its last leg,” warns the firm.

Maturity of growth cycle

“This is if nothing else by its own strength and the reality of economic cycles. Current valuations in markets and the very low levels of volatility suggest markets do not foresee any disruption to the status quo.

“Should economic and growth conditions persist as they are, however, inflationary pressures will start to become a problem potentially necessitating a response from the Federal Reserve.”

Schroders argue that several factors signal the maturity of the current cycle.

The household wealth/income ratio is at an all-time high of 670%, compared to previous highs of 657% in 2007 and 613% in 2000. This index reflects the level of financial assets against income of individual households, indicating a high level of participation in financial markets by individual investors. Consumer and business sentiment are strong.

Importance of business location

Unemployment is also at an all-time low.

“We have depression-level interest rates with boom-level equities. The market is assuming growth without inflation and no threat from the bond market,” said fund manager Robin McDonald.

“I do not think the bond market, or the equity market have priced anywhere near what the Fed might have to do if wages start rising at 4%,” he said. “There would be a big hit for bonds, a big headwind for a lot of the leadership assets in the equity market, and a big tailwind for things like value stocks.”

The report also points to the importance of locating business and warehouses in the right cities.

Businesses not only need buildings but highly qualified staff, mass transit and decent housing – which makes choosing the right city a priority.

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