Investors Return Their Focus to U.S.
Although the economic outlook for the United States is far from sublime, there have been numerous reports released in the past month that indicate things are moving in the right direction. The U.S. Bureau of Labor Statistics reported that unemployment decreased in June, both as a percentage of the total working population and in the total number of unemployed individuals.1 Furthermore, although predicted GDP growth for the second quarter was only 2.5 percent, the U.S. is still among the fastest growing economies in the developed world. Investors looking for secure investments are flocking to this market.
A recent study released by the Dutch Statistics Bureau revealed that world trade, measured in total import and export volumes, has nearly returned to the all-time highs of early 2008.2 In the U.S., capital goods orders increased, signaling an increase in business investments. In fact, business investment in the second quarter rose at a rate of 17 percent, the largest increase since the first quarter of 2006. All of these indicators provide a mildly promising outlook for the second half of 2010 in the United States.3
Furthermore, although the Federal Reserve has limited options to stoke economic growth due to near zero real interest rates, it still has a few silver bullets. One option is to increase the money supply by buying back U.S. Treasurys. With a cheaper dollar, exports are more competitive on the world market. As has been vividly displayed in China and India, export-oriented economies are far more sustainable than those that rely heavily on importing goods; an increase in U.S. exports will help neutralize the trade deficit, which, in the second quarter, singlehandedly took 2.78 percentage points off the U.S. GDP.
It seems that the imbalance between imports and exports was one of the only negative results of the second quarter in the U.S.; other indicators signaled a positive outlook for its economy. If the U.S. was a more export-oriented economy, economic growth could reach pre-recession levels. Investors, aware that the U.S. is on a slow but stable path to recovery, are regaining confidence in U.S.-focused investments in the alternative space.
Compared with the first month of the second quarter, the first month of the third quarter has shown a significant increase among private equity and hedge fund investors for U.S.-focused funds. In July, 116 investors specified an interest in U.S. funds. In April, only 90 investors specified the same interest. Not surprisingly, that number dropped in May (86 total mandates) because the flash crash on May 6 scared many investors from the region’s public markets.
Since then, investors have re-evaluated their interest in the world’s largest economy. Due to promising economic indicators released during the month of July as well as low inflation, which gives the Fed the ability to instate expansionary monetary policy, the outlook for the U.S. economy is slightly better than it has been in past months. This has caused more investors to refocus on investments in the United States.
1 The U.S. Bureau of Labor Statistics, “The Employment Situation – June 2010,” July 2, 2010, http://www.bls.gov/news.release/pdf/empsit.pdf.
2 City AM, “World trade is continuing to recover,” July 29, 2010, http://www.cityam.com/news-and-analysis/allister-heath/world-trade-continuing-recover.
3 Reuters, “Imports slow Q2 growth as business spending surges,” July 30, 2010, http://www.reuters.com/article/idUSTRE65M2WK20100730.