US economy continues to skirt recession

A raft of recent US economic indicators is helping to reinforce the long-held contention of Gartmore sub-adviser Marsico Capital Management that the US economy, while slowing, is fundamentally healthy and is unlikely to go into a formal recession. "However, the recovery is likely to be prolonged," according to Cory Gilchrist, Manager of the Gartmore US Opportunities Fund and the Gartmore SICAV US Opportunities Fund. Chief among the data releases supporting this view are the latest jobless tally and the figure for second-quarter growth in gross domestic product (GDP).

Although the latest employment report from the Department of Labour showed that the US economy shed jobs for a seventh successive month in July, the decline was slightly smaller than expected, notes Cory. "This shows the labour market is softening but the figure does not herald a recession." GDP grew at an annual rate of 1.9% in the second quarter, up from a revised first-quarter growth rate of 0.9% but less than the 2.4% expected. Although the tax rebates were mostly saved in the second quarter, they could well provide a fillip in the third quarter, especially as consumers start to benefit from lower prices at the petrol pumps.

Marsico's strategy of focusing on US-domiciled companies tapping into still robust global growth is underscored by a narrowing of the trade deficit and the support provided by exporters in July's Manufacturing Institute for Supply Management Report on Business (released in August). Although global growth is slowing, it is still above historical trends. Furthermore, "the backstopping of mortgage giants Freddie Mac and Fannie Mae points to a continuing strategy of unclogging the financial system, reason enough to encourage guarded optimism," according to Cory.