Economists who aren’t predicting a double-dip recession are at least expecting a low-growth U.S. economy for an extended period of time. What is the impact of an economy that doesn’t grow at it’s historical annual rate of approximately 3% year over year?
Consider these thoughts from Bill Greiner, Chief Investment Officer for Scout Investments:
From the end of World War II, the economic growth rate (Gross Domestic Product – GDP) has been roughly 3.3% after factoring in population growth and inflation. Greiner writes that this level of economic expansion translates into a doubling of the after-inflation standard of living every 29 years.
If the U.S. can sustain only 2% GDP growth for an extended time in the shifting landscape of the emerging global economy, the standard of living in the U.S. would double every 64 years. This assumes that inflation remains close to historical precedent.
Slower economic growth could mean that an entire generation gets skipped in terms of improvements to standard of living. That’s a lot more meaningful than the seemingly small difference between an economy growing at 2% instead of 3%.
Of course, you could argue that our standard of living relative to the rest of the world is pretty good and we shouldn’t be too concerned with less advancement than we’ve experienced in the past 70 years. Perhaps the key takeaway here is the importance of investing globally where there are parts of the world, particularly in the emerging markets of Asia and Latin America, that are in the middle of doubling their own standard of living through significant economic gains.
You can read the Greiner’s full note here: https://www.umb.com/stellent/groups/public/documents/web_content/017282.pdf
~ Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA