Fisher Investments Editorial Staff
Emerging Markets, US Economy

Skip the Double-Dip

By, 12/08/2009
Story Highlights:
  • Now that the global economy is on firmer footing, fears are shifting to the possibility of a "double-dip" recession.
  • It seems unlikely the US, let alone the world, will soon backslide into a second recession—increasingly, economic indicators point to an improving outlook.
  • Aggressive stimulus abroad and domestically will bolster economies for months to come.
  • Economic recovery will not happen in a straight line. However, small data dips are unlikely to throw the entire recovery in jeopardy.

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Just recently, many doubted US economic recovery would take place—ever. Yes, ever. (Few will fess up to it now, but they know who they are.) Now that the global economy is back in growth mode, fears are shifting to the possibility of a "double-dip" recession. Though the future's never certain, it seems unlikely the economy will soon slide into another recession soon. 

Increasingly, economic indicators point to an improving outlook. The S&P 500 is up 63% since the March 9th low—the steepest advance since the Great Depression. GDP grew 2.8% in Q3. The manufacturing sector expanded the last four months. Factory orders in October rose for the sixth time in seven months at a stronger pace. US retail sales likely rose in November—the third time in four months. Financial panic—the trigger of last fall's precipitous drop in GDP—seems behind us. Even jobs data—historically a laggard of economic recovery—showed sharp improvement in November. 

And while all the above is true, it's sort of wrong-headed. Why? Too US-centric. Sure, it's still the single largest standalone economy, but the US is barely a quarter of global economic output. These days, the rest of the world will take the US along for the ride, not the other way around. Global stocks ex-US have surged roughly 85%,* and emerging markets, 32% of the global economy as of October 2008 (easily bigger than the US!), are hitting their stride—China's most recent GDP reading was 8.9%, Brazil's 2.0%, and India's 5.3%. Those wondering where the catalysts for growth are often forget to look outside US borders. 

Countries globally responded to last year's financial crisis with aggressive monetary and fiscal stimulus, just like the US. As the stimulus spurs their economies, rising demand and business activity outside our borders will eventually bolster business activity within them. For example, even as domestic sales fell for many US multinationals, many remained profitable due to increasing sales abroad.  

Additionally, less than a third of US fiscal stimulus has been spent, and it's a similar story throughout the world. Though the stimulus deployment speed isn't laudable, this means the already strengthening economy has further wind in its sails. 

Economic recovery will not happen in a straight line. Data may be more positive some months than others. Some data will even contract or fall short of expectations. However, small data dips are unlikely to throw the entire recovery into jeopardy. Looking at GDP over the years reveals a more erratic pattern of growth than many might recall—again, it's never a smooth, straight line.  

It's easy to forget just how interconnected the global economy is and how highly correlated its markets are. As the world goes, so goes the US. That perspective has represented a distinct advantage for investors and will continue to—most folks cannot help but succumb to the myopia of home country bias. Look global, and the recovery is an easier thing to see. 

There'll be naysayers who focus on a potential double-dip—just like there were naysayers doubting a recovery would ever take place. But as time proved recovery doubts empty, fundamentals point to a continuation, not further slouching toward Gomorrah.  

*MSCI ACWI ex-US, from 03/09/2009 through 12/07/2009.

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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