For several years, the United States has been the bright spot in the world economy, with the strongest growth recovery among developed nations, sustained labor market improvement, and climbing stock markets. But that's the past. What about the future? From the perspective of senior European executives, the outlook for the U.S. market has become increasingly worrisome of late. In the most recent installment of a twice-yearly survey, a panel of those executives told Credit Suisse that their outlook for the U.S. has declined more than for any other region.
In the March 2016 edition of the Credit Suisse Executive Panel, weakness in the economies and capital markets of China and other Asian nations was still the top worry for 38.5 percent of executives. But that's down considerably from 57.8 percent in October. The percentage of those worried about the U.S. economy and rising interest rates, on the other hand, was moving in the other direction, rising from 19 percent in October to 29 percent in March. More executives voiced concern about U.S than did about Russia or further devaluation of the Chinese renminbi and other emerging market currencies.
The net percentage of executives who believe corporate spending will increase in the U.S. over the next six months was 16.9 percent. That's a stronger result than anywhere in Europe, but also represents a significant decline of 11.2 percentage points since the October survey.
Credit Suisse's survey polled European executives, but other data sources reflect a similar decline in confidence among American business leaders. Organization for Economic Cooperation and Development data shows that U.S. business confidence has declined more or less steadily since October 2014. The Conference Board's CEO confidence survey fell sharply in both the third and fourth quarters of 2015, and more American chief executives now have a negative outlook than a positive one.
Are the concerns justified? The United States is in its seventh year of economic expansion, after all, and unemployment has shrunk to 4.9 percent. Credit Suisse's U.S. economists expect GDP growth to slow from 2.4 percent in both 2014 and 2015 to 2.1 percent in 2016 and 2.3 percent in 2017, but they do not foresee a recession in the next few years. In fact, they expect unemployment to shrink to 4.5 percent by the end of the year, which should nudge the Federal Reserve into resuming interest rate increases in the next six months.
Still, annual U.S. GDP growth fell to 1 percent in the fourth quarter - half the rate of the second quarter - driven by lower residential and corporate investment and softening exports. Export weakness continued in January, when the United States shipped fewer goods and services overseas than at any point since 2011. Among the potential reasons for the decline: the dollar was strengthening from 2014 until January 2016, and many emerging market trading partners have been struggling with the collapse in commodities prices. Nominal global growth is also quite weak, up just 2.3 percent in the fourth quarter of 2015 - less than half the 4.8 percent average pace in 2013 and 2014.
Consumer spending has been doing the heavy lifting for U.S. economic growth, while weakness is concentrated in the energy and mining industries. Business investment has fallen dramatically as oil prices have plummeted, and Credit Suisse expects it to remain weak for some time yet. The stronger dollar and weak growth have hurt U.S. corporates outside energy-related industries, too. While wages aren't rising significantly yet in the United States, the combination of wage pressure in an increasingly tight labor market and weak global growth could eventually put more of a squeeze on earnings.
Still, strong household consumption should continue to buoy overall U.S. economic activity, and Credit Suisse expects oil prices to stabilize in the second half of this year. The bank's economists also expect global industrial production to trough in the next two months, though it is likely to remain below trend for some time yet. "The worst of the downside risks have passed," say Credit Suisse economists in a recent report, "even though the upside potential does not look compelling." A cautious, but overall positive view - it's just as the survey said.