10 Key Factors Supporting US Preeminence
This material has been summarized from the Goldman Sachs Wealth Management Investment Strategy Group’s 2024 Outlook, America Powers On.
In 2011, the Wealth Management Investment Strategy Group (ISG) first articulated their view of ‘US Preeminence.’ At the time, this was in response to many books and articles about the rise of the East, particularly China, and the fall of the West, particularly the US. Since then, the gap between the overall size of the US and Chinese economy has actually increased.
In their 2024 Outlook, ISG maintains their view of US Preeminence, but that’s not only due to the size of the US economy. It is based on the country’s unparalleled combination of the following 10 factors:
1. Largest economy in the world. It is currently 26% of global GDP.
2. Highest GDP per capita. This excludes a handful of sparsely populated countries (usually natural resource-rich or tax haven countries), each representing less than 1% of global GDP.
3. The largest, broadest, and deepest financial markets. US equity and bond capitalization is just over $70 trillion, seven times as large as the market capitalization of the next-largest market. This size and depth support economic activity in public and private sectors.
4. Favorable demographics. Aside from India, the US has the most favorable demographics relative to all major countries for growth of its labor force and total population. This is important as demographics are a driver of growth in GDP.
5. Highest labor productivity. US corporate management and US labor productivity have been ranked the highest in the world.
6. Strong culture of innovation. In 2022, the US spent $879 billion on research, more than the next five countries combined.
7. Persistent and diverse corporate earnings growth. US earnings have more than doubled from their peak level in Q3 2007, while the earnings of the rest of the world have increased by 22%, with Eurozone earnings showing the lowest growth at only 4% over this almost 17-year period.
8. Extensive natural resources. The US now produces 8 million more barrels per day of oil and natural gas liquids than Saudi Arabia, making it the largest producer of these commodities. The US has more arable land than any other country and it’s the largest exporter of agricultural commodities.
9. Safe haven status. During financial and geopolitical crises, the US dollar appreciated on 9 out of 11 occurrences, by an average of 4.8%. US Treasuries also appreciate 3.3% over the six months following the start of a crisis.
10. Resilience. The US economy has remained robust and has been able to recover from unexpected man-made and natural disasters, such as the global financial crisis and the Covid pandemic.
ISG also acknowledges the US still has several fault lines: a large national debt (98% of GDP in 2023), the highest income inequality among major developed economies, political polarization, and a decline in life expectancy (falling from 78.8 years in 2019 to 77.5 in 2022).
That said, the 10 factors outlined above are expected to persist into the foreseeable future, and endure even in the face of social, cultural, and political fissures. For these reasons, ISG believes US Preeminence is intact and recommends that clients maintain a strategic overweight to US equities.
This material represents the views of the Investment Strategy Group (ISG) in Goldman Sachs Asset & Wealth Management (AWM) and is not a product of Goldman Sachs Global Investment Research (GIR). It is not research and is not intended as such. The views and opinions expressed by ISG may differ from those expressed by GIR, LP, or other departments or businesses of Goldman Sachs. Past performance is not indicative of future results which may vary.
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