The sharp decline in U.S. GDP growth in the first quarter to a .2% seasonally adjusted annual rate is a stark reminder that the world recovery from the 2008 financial crisis is still a bumpy one. As we’ve long recommended at Global Income Edge, investors should adopt a diversified global portfolio that can bridge the growth gap between slowing developed economies and faster growing emerging markets.  

Global Income Edge subscribers have been largely insulated from the U.S. slowdown as our holdings have focused on industries that have pricing power such as telecom and utilities, or play strong demographic trends such as the expansion of healthcare to support retiring Baby Boomers.  

And because our portfolios are diversified by geography and asset class such as in real estate, our holding in other parts of the world have more than offset the slowdown in U.S. growth, which we believe to be temporary.

The severity of the U.S. slowdown caught many by surprise as economists had been forecasting an annualized growth rate of 1% GDP. And given that America is the world’s largest economy, the slowdown has sparked fear of a slowdown in our largest trading partners. Markets in Asia and Europe have seen steep selloffs in the last few days as a result.  

But don’t panic.

Some lags in growth had been expected, and we continue to believe the world recovery will continue, though in fits and starts.

In terms of the U.S., over the last three months there were signs that growth was slowing. Home sales and consumer spending have been weak. Consumer spending, which accounts for more than two-thirds of economic output, decelerated to a 1.9% pace in the first quarter, down from 4.4% growth in the fourth quarter, according to the Commerce Department.

Further, even though hiring has been robust, it has been sharply down from the number of jobs that were created in 2014.  Business spending, another key economic driver, also has weakened. Spending on software, research and development, equipment and structures declined at a 3.4% rate, compared with a 4.7% rise in the fourth quarter, according to the U.S. government.

In fact, we have for months observed that the impact of the strengthening dollar would hurt the earnings of U.S. multinationals which we have avoided investing in as a strong dollar makes U.S. products overseas less competitive. And now the effects were clear in the latest economic report.

The fall in exports did stall the economy last quarter, subtracting 1.25 percentage points from growth, according to the Commerce Department’s GDP report.

Following the government’s release of the quarterly economic data, the Federal Reserve said the growth slowdown is “transitory” and that the effects of declines in energy and import prices will dissipate.

That being said, we know that income investors don’t have the luxury of waiting for a global recovery and can’t afford to have volatility in their investments. That’s why we have focused on domestic U.S. firms that have pricing power and a long history of paying a dividend; firms that we believe are best positioned to ride out this temporary setback in U.S. growth.  

WEEKLY INCOME TRIVIA QUESTION

Q: What is the smallest natural number with seven letters in its spelled name?

The answer will be provided in next week’s issue.

Last week’s question was: What was the largest real-estate transaction in history?

The answer: Stuyvesant Town-Peter Cooper Village. This 80-acre, 11,000-unit apartment complex in Manhattan was sold in 2006 for a record $5.4 billion to Tishman Speyer Properties LP and BlackRock Inc. It remains Manhattan’s largest apartment complex, built of distinctive red brick and surrounded by mature trees and green lawns. Most of the units are out-of-date, without air conditioning or other modern improvements, but remain home to thousands of families in New York City. The record real-estate deal came at the height of the housing bubble, and was later considered a complete bust when the property was valued at a mere $1.8 billion after the recession.

Safety is everything when it comes to making money on real estate. That’s why we’ve devoted a lot of our recent attention to REITs – Real Estate Investment Trusts – which remained remarkably intact in the aftermath of the recession. They pay out most of their income in high-yield payments to their shareholders.

Paired with high-yield dividends, they are part of our strategy to make income that we call the “safest in the world” – click here to read about income that you won’t find anywhere else.