Daily Gains Letter

GDP Growth Up; Is the U.S. Really More Prosperous and Productive Than We Think?

By for Daily Gains Letter |

GDP Growth UpI’m not sure if it’s indicative of something darker or symptomatic of what we think is important, but on a day when tensions in Syria are at a boiling point and the U.S. releases solid second-quarter gross domestic product (GDP) growth numbers, the most popular search on Google is Michael Jackson’s 55th birthday.

On Thursday, August 29, the Bureau of Economic Analysis announced it revised its second reading on U.S. GDP growth analysis up to 2.5% from an initial forecast of 1.7%. Exports in the second quarter grew faster than previously expected, increasing 8.6%, versus a 1.3% decrease in the first quarter. (Source: “National Income and Product Accounts,” Bureau of Economic Analysis web site, August 29, 2013.)

The data show that exports in the second quarter climbed at their fastest pace in more than two years. Going forward, economists expect growth in the second half of the year to be somewhat more robust.

On one hand, some maintain the strong GDP growth numbers suggest the U.S. is more prosperous and productive than previously thought. Maybe, but it’s going to be pretty tough for Americans to continue to drive 70% of all GDP growth when unemployment and personal consumer debt levels remain high, a record number of Americans are on food stamps, wages are stagnant, and more and more Americans are landing part-time jobs instead of full-time jobs.

On the other hand, I contend the strong GDP growth numbers mean we aren’t quite as healthy as we think. In fact, because of our weak economic footing, our rising GDP growth numbers are a result of U.S. firms selling their products to more prosperous nations—or, as it may be, to even poorer countries.

While many mature economies, including the United Kingdom and Germany, reported GDP growth, there have been some surprises: for the first time ever, the combined GDP growth of poor countries has surpassed that of rich ones.

According to the International Monetary Fund, emerging markets will create $1.6 trillion more in goods and services than advanced markets in 2013. And if you exclude the largest advanced economy (the U.S.) and the largest emerging economy (China), both of which account for more than 30% of their group’s total GDP growth, the purchasing price parity-adjusted GDP of emerging nations surpassed advanced countries in 2009. (Source: Yanofsky, D., “For The First Time Ever, Combined GDP Of Poor Countries Exceeds That Of Rich Ones,” Huffington Post, August 28, 2013.)

While emerging countries do not have as much individual disposable income as advanced economies, it’s important to remember that there are more emerging and developing nations, and they have a larger population base.

While some may make a case for looking at exchange-traded funds (ETFs) with exposure to emerging markets like the Philippines, I think it’s a good idea to start looking at companies that can take advantage of our GDP growth.

In this case, it might be a good idea to keep Guggenheim Shipping (NYSEArca/SEA) on your radar. This ETF tracks the performance of the Dow Jones Global Shipping Index. The ETF is up almost 30% since the beginning of the year and down almost 35% since its November 2010 highs.

There’s economic strength in numbers, and an increase in U.S. exports could benefit well-heeled shipping companies. But because the industry can be volatile, it might be a good idea to reduce your risk and exposure with an ETF.

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