America economy continues to grow

The US economy may have had to revise down its first-quarter GDP growth figures but it began to feel like a model of economic strength compared with its developed market peers.

The Commerce Department said the economy expanded at an annualised rate of 3% in the first three months of the year, rather than its original estimates of 3.2%.It was the third quarter in a row of GDP expansion and, while the pace of growth is clearly slowing, there were clear reasons for optimism. It seems that economic growth is rebalancing away from consumer spending and into industrial production. Manufacturing grew at a faster pace than forecast in the first quarter – both through strong demand for exports and a revival in domestic orders. The Institute for Supply Management said export demand was the highest in 20 years.

Less encouraging were the jobless figures, which showed that US unemployment rose from 9.7% in March to 9.9% in April. This has raised the spectre of a ‘jobless recovery’ and may be acting to depress consumer spending statistics. Although last month’s retail sales figures were higher than expected, analysts pointed to the weak underlying trend. Overall sales were boosted by building materials and gardening equipment, where sales were skewed by incentive programmes.

There is also some danger in being top of the heap. The dollar appreciated further against the euro during the month, ending it at €1.22 to the dollar. It has also remained strong against sterling ending the month at $1.45 to the pound. The US now runs the risk its stronger currency derails its nascent export recovery.

In spite of the relative strength of the US economy, its markets had a weak month. The S&P 500 was down 8.4%, compared to falls of 6.6% in the FTSE 100 and 5.8% in the FTSE Eurofirst. The technology-focused Nasdaq also had a torrid month, dropping 8.7%.

The North America fund sector is still one of the best-performing over the year to date and is second only to Japan among the major markets. The average fund in the sector has delivered 7.73% since the start of the year, compared to a fall of 2.21% in the UK All Companies sector. However, that masks a huge disparity in performance from the underlying funds – the top fund has delivered 21.23% to investors, while the bottom fund has lost 11.58%. Meanwhile the North American Smaller Companies sector has returned an average of 15.86% to unitholders since January.