by Carl Tannenbaum, Chief Economist, Northern Trust
The strengths of the U.S. economy are likely to endure.
The United States has been thought of as exceptional in many respects. But on my current trip through Asia, quite a few clients have asked whether we are witnessing the end of U.S. exceptionalism. That conclusion may be premature.
Lofty impressions about America’s economy are based on many factors. The U.S. ranks in the top ten globally in output per capita; countries higher on the list have much smaller economies. U.S. markets are the deepest and most liquid in the world, and the U.S. dollar is the undisputed reserve currency. America’s legal, financial and social systems foster and finance innovation in a way that makes it the most productive and dynamic economy in the world.
While some of this reputation is self-generated, regard for the U.S. has been widely held. Global investors have felt comfortable sending capital to American markets, where returns have been outstanding over the past 25 years. Their use of U.S. Treasury securities as a benchmark asset has helped to finance the largest national debt in the world.
These structural advantages take a long time to change, but there is a sense in some quarters that America’s special standing is slipping. Annual deficits are deepening, and the U.S. Congress shows little desire to curb them. Rising interest burdens will make it more challenging to keep the country’s finances sustainable.
Disengagement from international commerce will create uncertainties and challenges for the American economy. Like other countries, the U.S. faces long-term demographic challenges that will be felt in rising social expenditures and moderating productivity.
Those concerned about America’s standing point to investor shifts out of U.S. assets so far this year. But these flows have been modest, and may simply neutralize past overweights. Long-term growth prospects for the United States remain attractive, especially relative to other developed countries.
None of this is to dismiss the risks surrounding America’s future. The United States no longer deserves a 100% score from global investors. But it still tops the curve.
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