The U.S. Remains the Brightest Spot in the Global Economy | American Funds

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Global Growth | U.S. | April 2015

The U.S. Remains the Brightest Spot in the Global Economy

Oil price weakness and dollar strength only help the situation

“Where U.S. markets go will depend on earnings growth. We believe the best predictor of earnings growth is not the rate of economic growth, but the change in the rate of growth. Dollar strength and oil price declines are expected to accelerate economic activity — supporting moderate earnings growth and the potential for continued market appreciation.”

Darrel Spence
Darrell R. Spence Economist Los Angeles office 24 years of experience (as of 12/31/16)

Consumer spending benefits from lower gas prices, but the impact varies

Sources: Thomson Reuters Datastream; Capital Group. As of November 2014.

The U.S. economy continues to fire on all cylinders. The job market continues to improve, which has supported a healthy growth rate in consumer income and a similar pace of growth in consumer spending. This is important because in the U.S., household spending accounts for 68% of the economy.

The recent drop in gasoline prices essentially translates directly into an increase in consumers’ purchasing power. In our view, the declines have the potential to add another 0.5%–1.0% to disposable income growth, which would push consumer spending up and help boost GDP growth going forward.

Our research shows that some areas of consumer discretionary tend to benefit when there is a drop in gasoline prices. Apparel, jewelry and recreation — and in particular gambling — tend to accelerate. Food — even meals out — appear less affected by movements in energy prices.

A broad array of businesses — from clothing companies including Nike, to internet retailers such as Amazon — have exposure to the improving health of the U.S. consumer. Select firms in a variety of these areas may benefit as falling gasoline prices put more money in shoppers’ wallets.

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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.