Go America! Why Goldman Sachs thinks the US economy still reigns supreme

missamerica1

Since the financial crisis of 2008 and 2009, many have wondered whether the whole mess marked the end of U.S. global economic leadership. There are plenty of reasons many economists and investors take that position: elevated joblessness, stagnant median wages and record budget deficits among them.

Now, a team of Goldman Sachs (GS) analysts are arguing otherwise. A comprehensive Goldman 2013 outlook concludes that, while big fiscal challenges loom, the American economy is still a cut above the rest of the world when it comes to some crucial metrics. The meaning for investors? “US preeminence relative to other economies is the single most important factor underlying our core allocation to US assets.”

Here are 10 reasons the U.S. economy may still have gas in the tank in the decades ahead, according to Goldman’s analysis:

1)  Still No. 1: The U.S. is home to a $15.7 trillion economy, the world’s largest and wealthiest. That’s double the size of China’s annual economic output, 2.5 times that of Japan’s and 4.5 times that of Germany’s.

2)  Stock & Bonds: The U.S. stock market has delivered returns of 129% from March 2009 (the financial crisis nadir) through the end of 2012. American equities outperformed European stocks by 24%, Japanese equities by 97% and emerging market equities by 22% during the same period. U.S. Treasuries had a total return of 18% versus 14% for global developed economy bond markets.

^SPX Chart

^SPX data by YCharts

3)  Land & Water: The U.S. outstrips the rest of the world (save Russia) when it comes to natural resources—energy, water, minerals and so on—on a per capita basis. America has 4.6 times more water resources and 5.3 times more arable land than China.

4)  Energy: The U.S. is on track to become the world’s biggest oil producer by 2020, ahead of Russia and Saudi Arabia, according to the International Energy Agency.

5)  Insourcing Boom: A conga line of U.S. companies—Caterpillar (CAT), Ford (F), General Electric (GE), and General Motors (GM) – have announced plans to shift production back to the U.S. thanks to cheaper energy outlook at home. Boston Consulting Group data cited by Goldman predicts that by 2020 the re-shoring trend will add 2.5 million to 5 million jobs and as much as $55 billion in output to the domestic economy.

6)  Competitiveness: When it comes to economic freedom and ease of doing business international rankings, the U.S. scores best among big economies and in the top 5% among all countries, according to data compiled by the Investment Strategy Group, Heritage Foundation and the Wall Street Journal.

7)  Demographics: The US and India are the only two countries with a growing working age population. Japan, the Eurozone and broader Europe and Russia are heading in the opposite direction. By 2050, the US will have one of the youngest workforces worldwide with a median age of 40.

8)  Military Power: America spends $711 billion (4.5% of gdp) on defense, an amount that exceeds the next 13 countries combined. China spends $143 billion.

9)  Talent Magnet: Nearly 40% of U.S. researchers migrated from other countries, according to a 2012 National Bureau of Economic Research working paper cited by Goldman. Unlike other countries like India, the U.S. retains a bigger share of foreign researchers.

10) R&D Powerhouse: The U.S. generated about 31% of global R&D expenditures in 2012. That’s about $436 billion in spending by government, industry and universities.

Photo: Anna Fischer

  • carlos

    The us is choke full of guys like those at Goldmann, Harvard Business School, Nobel Prizes in Economics and the sciences, yet when it comes to manufacturing sophisticated products the US has fewer competitive companies every year. So GS does not know what it is talking about. Kodak belly up, GM belly up, Apple can not build the Iphone in the US simply because the use does not have the technology to.make the key components.

    The us is run by a class of brilliant talkers interested in the quick buck and who are not really interested in the US as a nation. Many of the bright talkers have also unravelled the traditional values that created and made the US prosper.

    I mean, how productive is a country that endowed with the resources of the US is unable to provide for the average citizen the quantity and quality of life that all of Northern Europs, Germany and Japan do provide with very.limited natural resources.

    The us if full of bright talkers but the doers have dissapeared. Much better to be a reporter or a financial analyst or a lawyer or a medical doctor than an engineer or entrepreneur manufacturing things yet the others depend totally.on the skill of the enginer and industrial worker to survive.

    This is why the US is heading for big trouble, including antisemitism big time.

    • disqus_rrU40ADrms

      Unfortunately, you have made several good points and THAT IS NOT A GOOD THING!

    • http://www.facebook.com/JonnyReddoch Jonathan Joseph Reddoch

      Actually, GM would have gone belly up but was given a second chance and is doing really well now.

    • Dusty Carrier

      Sadly, these points are many of the very reasons the US will remain ahead. Due to it having the vast majority of its workers in office and design jobs, rather than industrial and assembly jobs, this means that it will contribute to other economies more, and thus feeding its own by housing the minds who design and manage these products. Additionally, it is also the home to many of the worlds leading companies in many different fields. The average citizen of 1st world countries know at least 3 American companies, Google, Microsoft, and Apple. Its the fact that the US adds an economic boost to the countries that it imports from that makes them so much larger of a economic power house.

      The US only shares win-win relationships with the countries that assemble and export its imports, this is its number one reason for its continuous lead.

    • http://twitter.com/reopentainment Alexander WJ

      Yeah grades don’t pay the bills. Its not about how talented you are, its about how well you can represent yourself to others. And we’re good enough in general that we can also walk the walk when it comes down to it. Like if Apple and Dell made the exact same product, you would assume the Apple one is better just on reputation.

    • http://twitter.com/kalish5 kalish

      I agree except it is a good point to have a lot of doctors, this is good for the US population. When the China will be in a totally free open market, you can bet a lot of the bright thinking people you talk about will leave for this part of the world, and the head of the companies too.

    • http://www.facebook.com/canterbury.pardoner.7 Canterbury Pardoner

      First, I hope you’re young because your command of the English language is tenuous at best. If you’re a high school graduate, your learning curve makes me sick. Second, the number of patents granted in the U.S. rivals that of the rest of the world. Third, ever heard of comparative advantage? Fourth, Google, FB, Twitter, eBay. About cell phones, ever heard of Qualcomm? Fifth, the presence of natural resources actually hinders economic growth (South America, Africa, there are books about it, not that you’ve ever read one). Furthermore, the United States volunteers to be the world’s policeman and spends quite a bit of its GDP on its military, a fact that allows U.S. allies to have reduced defense budgets. Sixth, your argument is an old Populist one of producerism and the uniquely American one of anti-intellectualism; if you’re going to use populist rhetoric, try to keep up with the times and use modern populist rhetoric. Populism is contemptible, but outdated populism even more so.

      Seventh, the rest of the world will catch up. It’s called the catch-up effect. Ever heard of it?

      The doers of this country have not disappeared. You’re simply not one of them, and you know it. The definition of ‘doing’ has changed, and you’re afraid that makes you obsolete. You’re afraid that you can’t complete. Now that is the actual unravelling of the traditional values that made the U.S. prosper.

      • Bill

        Canterbury Pardoner: “First, I hope you’re young because your command of the English language is tenuous at best” Humm, there is always one in the crowd.

        You could have made your point without slamming another’s “command of the English language”. Basically, that was a waste of my time and yours since it made YOU look like a dope.

        Go back to school and learn to play nice with other kids…

        Your credibility = 0

      • ivan

        Your point regarding Patents is null and void, The US has a habit of trying to patent everything then earning a buck from the ensuing litigation.
        The U.s doesn’t volunteer to be the worlds police, the deals struck with Europe post WWII, saw the prime military, with the largest fleet and better trained soldiers, having to down scale and sell of their colonies.
        additionally if it is not in the interest of halliburton, sorry the U.S, then America does not get involved. take a look at Africa and Syria. It also took a very brave woman prime minister to stop the US from profiteering during the South atlantic conflict in the 80′s by threatening to charge the US $100ml per day storage for the nukes on foreign soil.
        History is a wonderful thing when the text books in high schools are edited to reflect nationalistic rhetoric, rather than fact.

      • Arun Agarwal

        A country where 49 millions go to bed if you call it a bed,hungry is shameful and misuse of democracy,where people and govt.machinery feel safe to throw excess food rather use it for needy.The days of economic jugglery are not far too distant to forget.These facts are irreconciliable.America has to be saved from talkers.

  • http://www.facebook.com/ibnakhal Ibrahim Nakhal

    military power in my eyes is a weakness, if they’re spending 711 billion thats a huge waste of funds the could be redirected to more important things like the massive debt, the bankrupt cities, the poor infrastructure and public education, and so forth.

    • Peter

      Absolutely. That’s why after wars we enjoy a “peace dividend”, that is, having that huge expense hanging over our heads, in this case, 12 years and running.

    • http://www.facebook.com/shiro.tatsu Shiro Tatsu

      Poor infrastructure is subjective. Americans fly. We don’t take trains. Just not how we work. We all own cars as well. So.

    • Zak Adhikari

      That’s what Islamists want from America. A complete reduction of American military power so that America is rendered toothless to deal with the global crisis resulting from global Islamic assertiveness by way of Al Qaeda, Iranian challenge and other terror set ups; not to mention the challenge that China pose to its neighbours and western world. If there is a corresponding reduction in military spending by every country and decline of Islamic militancy, America can go for a meaningful reduction in military spending. Otherwise, it would do more harm than good.

  • efrustrated

    As a fundamental player in precipitating this crisis. Goldman Sachs advice is to be read and then entirely ignored. They have zero interest in making money for the individual investor, preferring to focus on their personal commissions, salaries and bonuses. Indeed, the unsophisticated investor is viewed as something to be fleeced sooner or later, not enriched.
    May they go speedily to hell in a handcart.

  • Puschkin

    How is spending that much money on the military GOOD for your economy? It may look good on paper since the companies producing those weapons are part of the economy, so their numbers are good. However, since for the country as a whole this isn’t beneficial – they are buying from themselves and the money is wasted on things that are useless unless you conqour and plunder a foreign country every couple of years. So, unless the US finds another vicitm soon, all this money is wasted on a huge heap of metal that rusts away and technology that becomes obsolete while you look at it. Just have a look at those gigantic mothballed fleets of warships that nobody needs and nobody wants to buy because they cost millions just to maintain.

    From this entry alone you can figure how full of BS this list is. It’s the usual sweet talk of mighty business men to make everybody feel comfortable so that they still invest. Don’t believe their lies. Capitalism as a whole is bankrupt, worldwide. That is, for the majority of people. A few will still be able to profit but those ain’t you and me.

    • http://twitter.com/reopentainment Alexander WJ

      So? This only says US is better than everyone else. Even if the entire world is going down, US still on top. So you can either put your money on the US or sit on gold in your underground bunker–which you will probably prefer to have on US territory. Spending that much on military is a huge reason we’re ahead, companies can rely on the protection of the US government whether from conventional, cyber, weapons or just pressure from outside groups such as the UN if other nations decide on predatory policies on them or their industry.

    • Joseph Daujotas

      What price is security and a good bargaining position? The US spending on its military is important to the current global stability that lets our economy prosper (its also much less in terms of GDP than other countries, so its actually pretty damn cheap). It keeps questionable actors from nationalizing our countries investments (as has happened when they think they can get away with it). It keeps the trade routes relatively free of pirates. It keeps other countries from screwing us and our trade partners.

      Of course if we to stop funding our military, and go isolationist… It might even be beneficial to our economy in another way. We could arm all sides of all the wars that would spring up in the power vacuum. Then when those countries are done blowing themselves up we can be the only country that makes things again and swoop in and gain huge advantages economically. Wouldn’t that be great? It has been done before, and it worked wonders.

  • http://www.facebook.com/SovietStrategy Karsakov St

    With such national debt, it is not too hard to show a supreme.

  • Vic Fletcher

    Is this the type of garbage GS produces? Start with Point #1…. US economy twice the size of China’s? Are you kidding me. CIA World Factbook, IMF and others that don’t write what their audiences want to hear use the proper measure of economic output, namely Purchasing Power Parity, to measure the output of various economies. Their results show roughly a 20% difference in output, a gap that is shrinking daily. Many of the other points above are equally self-serving.

    • Rene Sosa

      Honest question: Who do you believe has the best economy in the world and why?

      • unsickular

        China, because it has better growth rates and where the investments are more likely to boom than to go bust

      • John

        Oooh…great question. “Who has the best economy and why?” I will answer in terms of the overall economy, not near-term investment opportunity or how much I like the weather.

        I’d say the Nordic nations of Europe. Lower unemployment rates…equal healthcare at lower cost…stout management of personal and government budgets…seems manufacturing jobs there have withstood the flood of Asian semi-slave labor…many nations report higher “happiness” than the US (tough to argue with that one). They have some resources too: Norwegian oil, Swedish iron, Dutch natural gas, Finnish forestry, plenty of clean, cheap hydroelectricity. Dutch and Danish farms are small but mightily productive…as of a few years back, the Netherlands had the third highest value of agricultural exports in the world.

        A huge risk is the Euro currency, however. Not their fault though.

    • http://www.facebook.com/naftal.nyariki Naftal Nyariki

      Just looked at CIA fact book and confirmed the difference. This throws the whole article into question. wherever they got their facts from!

      • unitedvirtual office

        Hi Naftal,
        aren’t they similsr to CIA Facts…!

  • rayl906

    How is spending far more than any other country on the military a positive thing? If you produce consumer products, they get sold and have a wide spread positive ripple effect on the economy. If you produce weapons, they sit around waiting for something bad to happen. Or worse, they tempt our leaders into MAKING something happen (e.g., a wasteful, unfunded war in Iraq). If you outspend everybody else by that much on military hardware, it is likely that the output of weapons will be used for “aggression”, not defense.

    • JoeyYoung

      It depends on what you spend it on. The U.S is spending a huge chunk of money in research and technology which can lead to development of new technology with both military and civilian uses. I agree that spending a lot of money on maintaining a imperial power and it’s holdings around the world is bad, but the military spending is also large investments in the future.

    • http://www.facebook.com/profile.php?id=1382484871 Kevin Wilson

      Your understanding of why we need a large military is flawed. You see fault with a policy you do not understand.

      • Bill

        Well said.

  • http://msnlv.com/ Cosmic man

    Awesome report. America is a leading nation!

  • David Poole

    Thoughtful comments regarding US military spending are appreciated. I enjoy researching technological advances (photonics, nanotechnology, quantum computing, 3D-Printing, next-generation fusion energy etc.) One of the most exciting areas is military technology (please do not count me a warmonger).

    Military spending could be considered an economic strength because it is a massive R&D platform. Consider GPS features in phones, tablets, cars, and watches. It is nearly ubiquitous and a direct result of fifty year old Anglo-American military technology.

    Military expenditures fuel beneficial technology decades in advance. Advances in material science, fabrication, supply chain, ergonomics, communications, aerodynamics, green-tech etc.

    • haggai audi

      spot on.

    • Guest

      That’s right. Even in the internet is ex-miliitary tech. The real question is who needs to die to keep this R&D going?

    • http://twitter.com/kalish5 kalish

      I don’t really agree, if you have put all the money in the military effort for research US would be full of nuclear nukes and moon rockets. The military benefited of the informatics development and participated at some point in that development but they were not the leading force. If it was, the russian would have been as developed as the US in terms of informatics.

  • Peter

    More & more the stock market is not an ideal barometer of how Main St. USA is doing. Too much “pump & dump” where there are fortunes made by day-traders, etc. but for the institutional investor, or one who contributes to a 401k and cannot sit at his computer in his underwear everyday buying and selling, his money is not working nearly as hard for him and he suffers worse in the downturns.

    • http://www.facebook.com/black.dreadnought Black Dreadnought

      Interesting how Wall Street badmouthed the rules of small market makers like the Vancouver Stock Exchange, comparing it to slightly below the Salt Lake Exchange, and slightly above the Mexican Exhchange (Barron’s 1972) and then ADOPTED all this exchanges protocols twenty years later!!

  • http://www.facebook.com/astrophysician Arnold Gill

    Military spending for supplies is an example of building things to be throw away. Not sure how this is helpful in the economy. On the other hand, building things for the long-term (infrastructure, for example) employs the same skill set, the same people, and spends the same money – yet makes the lives of people better for the next 50+ years. Seems like a no-brainer to me. But then again, these are politicians who make these decisions. We all know that they have to take stupid pills starting from the day they are elected.

  • http://twitter.com/Telanis_ Telanis

    “The U.S. outstrips the rest of the world (save Russia) when it comes to natural resources—energy, water, minerals and so on—on a per capita basis.”

    What about Canada? A tenth of the population of the US but the second largest country behind Russia. Covered in rocks, trees, and water.

    • Rene Sosa

      When you consider the amount of resources Canada yields and the fact that a lot of Canada’s land is not arable, I can understand why it doesn’t rank higher.

    • Cole

      All we have is the oil sand, yet they were not economical until the price of fuel went up. When gas shot up they decided to do fraccing then sending it to the u.s. in their hunt to secure more oil for their reserves when the wells dry up. Not only that more than 80% of the country is covered in snow and ice for 6+ months of the year.
      Oil, precious stones and minerals are all that we really get besides that, and they are in shitty ice covered hell holes with -40C winds blowing a thin sheet of ice over you eye lids. Yeah we’ll sell you all you want, just come and get the resources if you’d like.

  • http://www.facebook.com/black.dreadnought Black Dreadnought

    Goldman Sachs? Data that they’re buying into; the punchline writes itself.

  • http://www.facebook.com/jens.marck Jens Marck

    There is a very simple reason the parasites at GS think the US economy rules supreme: they are a big part of turning it to a system of parasitism on the economies all over the world. When children and slaves in Africa and Asia exist in higher numbers than every in history that is because american corporations can bring money and products across any border today. But accountability stops dead at any odd fence. Golman Sachs had a huge hand in ruining Greece. But wen Greece went down they had already been paid and were gone. They even profited twice by then betting on Greece going down as they were instrumental in making it happen. As long as criminal parasites like Goldman Sachs not only not go to jail but thrive the world is still on a fast spiral to hell.

  • http://www.debtconsolidationcare.com/User/NathanielCopeland Nathaniel Copeland

    Military spending is not a waste, not at least in America. It is an industry in itself paying taxes and generating revenue. Each year it makes about 50-80 high profile big dollar sales to developing nations across the globe. Just think of the military spending as their weapons industry’s advertising budget.

    • http://www.facebook.com/akiritchun Алексей Киричун

      US exported about $60 billion (worth of military equipment in 2012, while DOD budget was $700 bln. That makes “advertising budget” 1200% of sales.
      Defence industry does not pay for itself even in Russia ($13-15B exports, $90.7B spendings – probably the best ratio among major arms manufacturers).

      That does not imply that military spendings are redundant.

  • phernuggs420@yahoo.com

    I know I will still have money because I go to the place under to purchase goods. They are way cheaper and save me money? If you take a look at the site below the seller is selling items for far cheaper then the competition.

    http://myworld.ebay.com/bestdeals8006708295/?_trksid=p4340.l2559

  • Trevor Howard

    The stock market does not reflect the effort or reward of production in the USA it now reflects the over whelming welfare and debt ridden forward pensions that are too be capitalized. —YIPPEE WELFARE LOVING AMERICA

  • herpderp

    I actually laughed out loud at #3… usa maybe ranks 4th if they really try to fudge the numbers

  • http://twitter.com/ajfilipiuk Antoni

    Populist article. Only wishes! Everybody can say all this staff or totally opposite!

  • burn

    this is a joke right? a publicity stunt by dreamers wishing and cheering the bias optimism, holding on ledge which we all know are not factual.

  • http://www.facebook.com/people/Mauricio-Morales-K/584110257 Mauricio Morales K

    Yeah yeah, just make sure you guys learn mandarin soon.

  • http://www.facebook.com/rehabb.onn Namit Bafna

    GO USA!

  • http://twitter.com/kalish5 kalish

    BS. US is 3 times bigger than japan in terms of population, and it is only 2.5 more important in terms of GDP, so you still think the US is a healthier economy? Pay also attention the germany is approximately at the same ratio concerning demographics. More US have maybe 10 times more lands than germany and 20 times more lands than Japan, with huge ressources, such a low level economy is only the sign of a bad governed country. The biggest oil porducer? LOL just plenty wrong, shell oil won’t make it for sure, you don’t realize what amount needs to be produced and at what cost. Shell oil are more expensive than traditional one, saudi arabia is a producer of traditional oil, so less expensive, US can’t compeete, the US wells are not full enough, and you can’t exctract the whle of it. GS is never wrong excepted when it wants to fool the people. Take care, don’t put too much money in US stocks.

  • http://www.facebook.com/micki.schloss Micki Schloss

    The most important reason of all was omitted from this list. The U.S. has a rock solid currency that other countries purchase to increase the credibility of their own portfolios.

    I would like to see GS have less of an adversarial relationship with the US government and more of a partner for the common good.

    Think TR

  • http://www.facebook.com/mirahsan2 Mir Ahsan

    I still see people under bridges and homeless. Even IF it’s worse of in other countries I digress. This is America and we should not only aspire to be the best. We MUST be the best.

  • http://www.facebook.com/people/Jonathan-Collins/1409858047 Jonathan Collins

    They don’t want you to take precautions. If you pull all your money from the banks so you don’t loose it during a depression they are gonna be hurting.

  • Keerview

    100% correct. The US must stop to build wealth in India and China. Globalization doesn’t work as shown in Europe where the expansion politics miserably failed. A few winners and the masses lose. The outsourcing to India in IT has also led to a loss of quality. Americans who want to work should always be able to find a job with a decent salary which would sustain growth and progressive lifestyle in the US. As long as we import more than we export we have a growing problem and not enough taxpayers to pay off a hideous amount of debt.

  • disqus_rrU40ADrms

    Taxes, trade policies and tariff policies. For the past 40 years the US has virtually declared war on its own middle class and its own manufacturing base.

  • jura5423

    That’s an encouraging report.

  • Kevin Small

    Yes if you are born into wealth in the US you will do just fine over your lifetime.If you are one of the many unlucky born with no silver spoon in your hand not so much.Was Main st mentioned in this article?

  • binaryoptionsbinaires

    And with guys like Eliot Spitzer and Anthony Weiner running amuck with their own shamelessness, Wall Street could even seem slightly more ethical to observers. Reference caricature at http://blog.optionsclick.com/2013/07/24/dollar-rallies-and-stocks-lower-on-weak-asian-data/

  • qcubed

    Of course they think it reigns supreme. They are masters at robbing us blind and getting away with it. Their manipulation of aluminum supplies is a great example of the crooked practices they have engaged in.