The Commerce Department recently reported that U.S. gross domestic product (GDP) increased at a 3.7% annual rate in the second quarter of 2015—a healthy level well above the 1.5%-2.4% actual annual results during this slow recovery. The Commerce Department also reported that business investment increased 3.2% on an annualized basis.
This got me thinking about figures closer to home — those that relate to our clients. There’s an old expression that a rising tide lifts all boats, but the performance of our client base shows that some boats rise higher than others.
In 2014 when the U.S. GDP rose 2.4%, the value of all goods and services provided by Meaden & Moore clients, what I’m calling the Gross Meaden & Moore Product or GMMP, increased 2.6% reflecting the rising tide theory.
Certain industry sectors reported strong growth such as transportation with 13% annual growth and construction growing 9%. Holding things back a bit were our manufacturing clients whose overall growth was just short of 0.4%. Of note, however, is that our clients’ investment in fixed assets increased a whopping 22.6% in 2014. Those manufacturing firms who only had 0.4% growth increased their investment by a staggering 29.8%. This would suggest that a fair amount of growth is expected in 2015 and beyond. I would consider that investment figure to be an excellent leading indicator of future economic performance. We’ll certainly know how this unfolds as time goes on and we update our measurements.
Another figure that supports growth expectations is the increase in borrowing. Each year, existing debt balances are expected to decline as term debt amortizes. In 2014, our portfolio saw a net increase of 4.8% which, assuming an average debt runoff of seven years, new debt was added at a rate commensurate with the growth in capital investment. When coupled with an increase in revenues and profits, increased borrowing is an indication that growth is expected to continue.