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Putting US Growth into Perspective: Leverage

Favorable economic data over the last decade, paired with a benign inflationary backdrop, has enabled US companies to generate a stronger earnings recovery over this cycle than other countries and regions. Earnings in the US are 71% above their pre-crisis peak, compared to 45% in China, 17% in Japan, and declines in the UK, Eurozone, and emerging market countries in aggregate. With respect to the prosperity of individual citizens, US GDP per capita has increased by 33% since the trough of the global financial crisis eclipsing other developed and emerging economies. Meanwhile, China’s GDP per capita, which is below the poverty level of the United States on a nominal basis, is not projected to catch up to that of the US in this century.

This growth of the US has outpaced that of other countries in the face of significantly greater deleveraging in the private sector—households, the non-financial corporate sector, and the financial sector—relative to other key countries. Financial sector deleveraging is particularly relevant in terms of the stability of the financial system. US banks also rank most favorably when compared through tangible equity to assets across key countries and regions. US banks have the highest ratio of tangible equity to assets and have shown the biggest increase since 2007. Not only has the US deleveraged by a greater magnitude but leverage across corporate America is lower than in other key developed countries and regions. Keith Knutsson of Integrale Advisors states "Such lower levels of leverage mean that the US is better positioned to withstand external shocks or a global recession."

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