US economy adapting quickly to new market conditions
The US economy has responded a lot quicker to the changed global economic situation than its European allies, Schroders head of US equities Jonathan Armitage said.
“We are looking at recovery in the US and stagnation in continental Europe,” he told Money Management.
“The US was the first into the economic crisis and I still think they will be the first out of it.”
Armitage said there were still problem areas in the US, with certain manufacturing sectors, such as the auto industry, experiencing severe difficulties, but argued these problems were more company-specific.
“Other parts of US manufacturing, even in areas such as auto component manufacturing, are doing very well and are supplying global markets.”
The economic downturn has also reduced manufacturing capacity, which was long overdue, he said.
“There have been issues surrounding excess capacity in US manufacturing,” Armitage said.
“The shift in the economy has identified real issues and people have been focusing on reducing that excess capacity.”
There are also encouraging signs in the US housing market, with the cost of financing lower than it was five months ago.
“Credit has become available in the crucial markets of California, Florida and the North East,” he said.
Armitage said while the slowdown in the US was brutal, its ability to adjust to the new market conditions illustrated the underlying strength of the US economy.
“It is [a testament to] the flexibility of the US market,” he said.
The US consumer has a rational head and the rise in the savings rates is an indication that they have adjusted to the new market conditions.
Although increased savings could be damaging to consumer spending, Armitage argued the stronger companies operating in these markets will survive and the weaker would have eventually failed.
“There will be (consumer-related) companies that will benefit from growing market share from their competitors,” he said.
“But we are not expecting consumers to come flocking back to spending, it will take time.”
Schroders is therefore taking a long-term view of when markets will return to moderate rates of growth, Armitage said.
Recommended for you
The new financial year has got off to a strong start in adviser gains, helped by new entrants, after heavy losses sustained in June.
Michael McCorry, chief investment officer at BlackRock Australia, has detailed how investors are reconsidering their 60/40 portfolios as macro uncertainty highlight the benefits of liquid alternatives.
Having reset its market focus to high-net-worth advisers, Praemium’s administration solution has been selected by Bell Potter in a deal that increases the platform's funds under administration by $6 billion.
High transition rates from financial advisers have helped Netwealth’s funds under administration rise by $3.7 billion in the fourth quarter of FY25.
