The US economy may face headwinds in 2015 and could struggle to sustain last year’s momentum due to global uncertainties despite the World Bank upgrading US growth forecast to 3.2 percent from an earlier estimate of 3 percent, said Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds.
The US may be an island unto itself when it comes to growth, but it still is inter-connected. Global weakness is likely to spillover into the US, through the country’s exports and hurt companies that generate a chunk of their revenues from abroad.
Some of the data coming out this week, including the real average hourly-wage – particularly the weekly wages portion that showed a growth rate of 1.6 percent or so, was really not consistent with an annual growth rate of 3.2-3.5 percent for 2015, he added.
Asked if the disappointing retail sales data published this week is a warning sign, Brian answered in the negative. Retail sales data were weak, but they are subject to a lot of variations and revisions and investors need to wait till the revised estimates are released; that’s the bad part of some of the economic data – they are not only delayed, they are also subject to revisions.
Rather, if investors focus on corporate earnings, they will find sales are still growing by around 1.5-2 percent per annum. It’s not great, but it’s decent. Earnings data from consumer staple & discretionary companies in the final quarter don’t indicate an accelerating growth. People are perhaps anchoring their expectations based on the Q2 and Q3 GDP numbers which were really good, but they are unlikely to be sustained in the first-half of 2015, he noted.
Asked to comment on the recent surprise move by the Swiss National Bank to remove the franc’s cap, Brian said it was an interesting development. Some US investors probably would be surprised to find the extent to which currency trading was popular among non-US investors.
It’s a growth-area for a lot of firms across the world though that might be changing now after the Swiss central bank’s move. If anything, the dangers of relying on central banks’ pledges that peg their currencies when it’s not backed by a currency-board or an institutional commitment were exposed. The SNB’s move was akin to pulling the rug beneath investors’ feet and it was a mistake; they probably have to live with the consequences now, he observed.
Asked if the US Fed is likely to raise rates in 2015, Brian answered in affirmative. One of the key lessons from the SNB episode is that “monetary policy is most effective when it’s a surprise.”
However, the Fed doesn’t really want to surprise anybody; and if it wants to surprise the markets, it’ll probably be a positive surprise and not necessarily a scary surprise.
June 2015 is still a reasonable expectation for an interest rate hike by the Federal Reserve, probably by 25 basis points. But there is a risk on the upside to the economy – the Fed might postpone a hike, or they may do something a little bit fancier and raise rates by 12.5 basis points. The Fed is targeting a window as opposed to a specific number for the Federal Funds Rate (FFR), he concluded.
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