Healthier Consumers Bolster U.S. Growth Against External Pressures | American Funds

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2016 Outlook

GROWTH AMID VOLATILITY  |  U.S.  |  January 2016
Healthier Consumers Bolster U.S. Growth Against External Pressures

Expansion Remains on Track, Despite Weak Export Demand, Industrial Production

“On a fundamental basis, the U.S. has not reached a point of excess and is in pretty good shape. However, investors should expect some volatility going forward. Right now the biggest concern is whether China will get worse. There is always something to worry about. A whiff can turn into a cough, but in this case I do not expect a cold.”

Claudia P. Huntington Portfolio Manager Los Angeles office 44 years of experience (as of 12/31/16)

Sources: Thomson Reuters IBES, IMF, U.S. Bureau of Economic Analysis, Federal Reserve. Earnings are 12-month forward-looking earnings estimates as of December 31, 2015. Household debt service ratio, which represents household debt service payments and financial obligations as a percentage of household net worth, is as of September 30, 2015. Core inflation, which excludes volatile food and energy prices, is calculated monthly as part of the Personal Consumption Index (PCE) and is as of December 31, 2015. Average hourly earnings and unemployment rate as of December 31, 2015.

Weakening global demand has cast a long shadow, but U.S. company earnings overall appear to be in good shape. For that, corporate America can thank the U.S. consumer. While earnings expectations have plummeted for industrial- and energy-related areas, such as oil and gas drilling, a broad array of consumer-focused companies, like home improvement and internet retailers, are generating stronger profits.

In fact, for the 12 months ended September 30, 2015, consumer spending rose 3.2%. And with household debt service at multiyear lows, wages rising and the employment picture improving, American consumers, which account for 69% of GDP, may just be getting started.

Of course, in today’s global economy no country is an island. Capital expenditures and net export growth have weighed on overall GDP. These headwinds will likely remain until conditions improve in China, Europe and elsewhere.

Companies across a wide variety of industries are exposed to rising consumption. These include home improvement retailers such as The Home Depot and internet retailers like Amazon. As American consumers flex their muscles, select businesses in these areas stand to benefit.

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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.