US Economy: Still ‘Exceptional' in Our View

RiverFront maintains its view of "US Economic Exceptionalism," asserting the nation's superior economic growth, robust productivity gains, and sustained foreign demand for US Treasuries despite global skepticism. The US economy has consistently outperformed peers in growth and pandemic recovery, with Q3 GDP projected near 4% and non-financial corporate productivity surging 5.7% in Q2. Foreign holdings of Treasuries reached a record $9.16 trillion in July, reflecting ongoing confidence in US assets, which underpins RiverFront's overweight allocation to US securities.

Analysis

RiverFront Investment Group posits a continued case for 'American Economic Exceptionalism,' arguing that the US economy's structural advantages outweigh prevailing pessimistic narratives. This view is supported by superior relative economic performance, with the US demonstrating faster growth than Europe or Japan pre-pandemic, a shallower contraction during the 2020 downturn, and a more robust recovery. Current indicators reinforce this strength; the Atlanta Fed's GDPNow tracker points to nearly 4% year-over-year GDP growth for Q3 2023, following a 3.8% expansion in Q2. Further, the August US Composite PMI registered a firmly expansionary 53.6, outpacing other developed economies, while nominal retail sales grew 5% year-over-year. The core of this resilience is attributed to structural productivity gains, evidenced by a 5.7% quarter-over-quarter surge in non-financial corporate productivity in Q2, where output per hour rose 7% against a mere 1.2% increase in hours worked. Contrary to fears of capital flight, foreign holdings of US Treasuries reached a record $9.16 trillion in July, with strong demand from private foreign entities offsetting stagnant official holdings, suggesting continued global confidence in US assets. This confluence of factors underpins RiverFront's strategic overweight allocation to US securities.

Key Decisions for Investors

• Given the strong evidence of US economic resilience and outperformance, investors should consider maintaining or increasing their overweight allocation to US equities relative to international developed markets.
• Investors could prioritize exposure to sectors and companies that are primary beneficiaries of the structural productivity boom, focusing on firms with strong innovation pipelines and intellectual property moats.
• It is prudent to monitor the key data points supporting this thesis, including monthly PMI releases, retail sales figures, and trends in foreign holdings of US Treasuries, to detect any potential shifts in economic momentum or global investor sentiment.