“Quite An Achievement”: Jens Nordvig on the US’ 5% Growth

Jens Nordvig, Co-Founder and CEO of MarketReader, explains the factors that he believes are underpinning two consecutive quarters of robust growth for the US. He also shares his views on the possible outcomes of the upcoming US election, and how inflation is influencing both candidates’ campaigns.

Jens Nordvig is Co-Founder and CEO of MarketReader, a platform that uses artificial intelligence (AI) to empower investors to understand why the market is moving, by correlating economic shifts to geopolitical events. He is also the Founder and CEO of Exante data, which develops proprietary data and analytical solutions for investors.

Nordvig has a positive outlook on the US economy, although there are some red flags — among them the country’s large fiscal deficit relative to GDP, which he says is “unprecedented” in the context of a strong economy, and could cause problems in the event of a downturn.

Economic Medicine

However, Nordvig is of the opinion that there are structural factors working in favour of the US economy. Among these are a strong labour market and the increased productivity resulting from the proliferation of AI technology.

As well as its direct impacts, AI may also be benefitting the healthcare sector via discovery of new medicines. Nordvig believes this could further boost productivity by reducing sick days and other health-related productivity losses.

Developments like these, he says, “leave some hope that we can actually sustain this growth in the US”.

Growth came close to 5% in Q3 2023. While it has moderated since then, “that momentum is still pretty decent into the first quarter of this year”.

The most significant upcoming event in the US is, of course, the presidential election in November. For Nordvig, there are two factors that make this race different from others in recent history.

On the one hand, political opinions in the country have diverged to extremes. “We’ve never had a political situation where the debate is so polarised,” says Nordvig. “If you look at consumer confidence surveys and split them into Republican and Democratic voters, there’s a huge difference between how they perceive the economy.”

Republican voters previously became bullish about the economy following Trump’s first election, but are now more downbeat about it.

That is “somewhat divorced from what the economic data is saying,” adds Nordvig.

According to a February report in The Wall Street Journal, however, the trend pans out: Republicans tend to favour the economy when one of their own is in the executive branch, and the same goes for Democrats.

“If you look at consumer confidence surveys and split them into Republican and Democratic voters, there’s a huge difference between how they perceive the economy”

Adding to the split in economic perceptions may be the ongoing trend of an American working class that increasingly chooses to vote Republican, where it once was considered a stronghold of the left.

An Inflated Issue?

The other new factor is inflation, which has entered the equation during Biden’s term.

Nordvig attributes the recent inflation spike to both monetary and fiscal policy.

On the monetary side, Nordvig highlights the Federal Reserve’s (Fed) policy of so-called average inflation targeting, which he believes bred overconfidence, by temporarily allowing inflation to run above target levels to compensate for previous below-target periods.

“Now, there’s no discussion of whether or not we should undershoot,” he says.

However, he acknowledges that “it’s hard to create inflation from monetary policy alone”. Large stimulus packages during the Covid era have taken time to ripple through the economy, but in Nordvig’s view they are a factor contributing to current inflation levels.

Government spending initiatives such as the Infrastructure Investment and Jobs Act have also had an impact.

The US, says Nordvig, was ahead of the rest of the world in the recent inflation sequence, and appears now to have brought it under control comparatively early.

“We’re managing to get inflation down without a dramatic downturn in the economy. It’s quite an achievement,” he says.

Nordvig believes that the last two months of unclear inflation data have delayed the Fed’s cutting sequence, which some had hoped might begin in March. However, with more favourable data having dropped, June could be a realistic time for the cutting sequence to begin.

Both inflation and wage growth are trending downwards he says. It is notable, however, that US wage growth, having trailed inflation from February 2021 to February 2023, has outpaced inflation for a full year.

Moving the Market

Should Biden win re-election, Nordvig expects a continuation of his headline policies, particularly a decades-long commitment to the NATO alliance. Trump, however, has expressed growing dissatisfaction with the alliance, and could seek to alter the agreement should he win a second term.

The election is not the only factor at play.

As Nordvig points out, the war in Ukraine and increasing trade tensions with China are both disincentives towards globalised policies and supply chains. Biden has not touched the tariffs that Trump imposed on China during his term; they are “one of the few things in the US that there’s consensus about”.

A Trump victory, however, would make the situation “more unpredictable”, says Nordvig, due to his threats of tariffs on Mexico. He sees Biden as being more inclined “to reduce all tariffs and remove trade barriers”.

Both candidates, Nordvig believes, will point to strong stock market performance during their previous terms as part of their campaign strategy. Trump even took to Truth Social [DJT] to claim credit for its recent bull run, on the basis that investor confidence had been boosted by his performance in the polls.

Nordvig thinks there are various ways in which the stock market’s performance is materially significant for the US economy.

For one thing, US households are especially inclined to invest in equities, compared to other large, developed economies such as Germany. According to research by Goldman Sachs, 48% of US household wealth is invested in equities as of 20 March, the highest level since March 2000 — which marked, of course, the beginning of the dot-com market crash.

Additionally, a bullish market increases appetite for IPOs, which has further knock-on effects in the economy. In the last few weeks, several tech companies have gone public; Reddit’s [RDDT] IPO raised $750m on 21 March.

“There’s something new going on there, and it’s quite important.”