US Exceptionalism Remains Strong

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

US Exceptionalism Remains Strong

The US is significantly different from the rest of the world. It’s political system, values and development set it apart. In business they have been, and continue to be, a leading force, giving credence to the notion that US business is also exceptional. Their creative destructive capitalist model has given birth to innovative new services and products commanding eye watering valuations.

This week Tesla, the US car manufacturer reached a valuation of $1 trillion. The F.T. reported that Tesla is the 6th US company to hit and then surpass a trillion-dollar number; and, amazingly, is now more valuable than the top 9 leading car manufacturers combined.

Source: Financial Times

What then, we ask, is the ‘US exceptionalism’ response to disruption in supply chains infecting global commerce? How is the US consumer and US business handling shipping lanes snarled up, labour shortages, costs going up, and of course the ongoing presence of COVID-19 embedded into each of these aspects? In many respects these problems seem ideal for an exceptional nation to work around and to find solutions.

To offer our perspective, and one distant from the negative UK media bias, we believe there are grounds to be optimistic. Below we have looked at consumer and business survey data in the US, and also anecdotally to see how some US businesses are responding to the challenges.

First, survey data on consumer confidence. In the US this has dipped and reported as a major negative by the media. We can certainly see the big dip from the chart below, but the much bigger and more important point is the fact that the latest reading of 71.4 means that on balance consumers remain optimistic!

Source:  Bloomberg

Moreover, against the backdrop of waning confidence among consumers, US retail sales increased by 0.7% last month. This rise may seem small, and even insignificant, but economists, also feeding on bad news, had forecast that retail sales would decline by -0.2%. They seem to have missed the fact that US consumers are sitting on excess savings of over $2trn and equivalent to 12% of GDP

Second, those in the business of manufacturing are not downbeat by any stretch of the imagination. A reading above 50 signals an intention to expand, and the latest number of 59.2 shows that expansion remains on track, albeit softening slightly.

Source: Bloomberg

Aside from survey data, several recent anecdotes also suggest US businesses are responding positively and innovatively. Here are some examples.

  • Hertz, the US car hire company, placed an order for 100,000 electric vehicles from Tesla.
  • US companies with stretched supply chains are ‘near shoring’, moving production closer to home. One US company recently moved half of their shoe production from Asia to Mexico to avoid the need for shipping.
  • Target Corp, a key US retailer, signalled that Christmas is ‘in the bag’. They have chartered their own container ship, securing goods needed for their stores during the important holiday season

We could offer more examples but hopefully they give a flavour of positive action.

Of course, as we have mentioned, there are negatives too – higher input costs, shortages of key components here and there and Covid-19 keeps rearing up. But shortages and rising prices are a function of the global pandemic backlog, and they will ease. The negative effects would not exist without positive demand and yes, they may last a little longer than planned. This is unfortunate, but not devastating.

From what we can see, and from what we hear from talking to other investors, US exceptionalism is holding up. Consumers have cash to spend, US businesses are adapting, and strong retail demand is giving corporates a top line boost.

To be exceptional you need confidence, a positive attitude and strong self-belief. Thankfully for the global economy, these attributes are ingrained in the US psyche.

Global Markets