One Man’s Opinion: Is There A Disconnect Between GDP Readings And Retail Sales Numbers?

ManUS businesses are hiring people but are unable to get much extra output per hour of their work, and so income and sales are sluggish, said Vincent Reinhart of Standish Investment Management, a subsidiary of BNY Mellon.

While unemployment rate has hit 4.9-5 percent rate, the gross domestic product reading doesn’t seem to corroborate the US jobs scenario. Asked to explain, Vincent said all those people working need not necessarily feel good about it because they are not getting wage increases.

The national challenge is increasing productivity and the US administration has not been very successful about doing that in the last couple of years. Insofar as credibility of GDP numbers is concerned, undoubtedly the employment readings are more trustworthy since it’s possible to count the actual number of people with jobs.

Additionally, there are two different surveys – the establishment and the household-survey, and that covers a good part of the universe. But when retail sales are considered, it’s natural to ask at what prices of those goods are sold, and that answer is really tricky, he explained.

Asked if the Fed would increase rates once more in 2016, Vincent said the Fed’s dot-chart, which shows the summary of economic projections and the Fed’s aspirations, indicates the US central bank will tighten rates at most twice in 2016.

But all the tone and feel indicates that the FOMC can easily be convinced not to do that. While it’s likely the Federal Reserve will hike rates twice, it won’t be surprising if they end up with only a quarter-point hike in 2016, he observed.

Asked if the current economic trend is a global phenomenon or if the US should not be doing things it has been doing for a long time, Vincent said the bad news is that the US is the best house on a bad block.

The proms in productivity are shared across advanced economies and the sluggish growth-performance is shared by just about all US’ trading partners. In some sense, the striking thing is that the US economy is performing relatively better than anybody else, he noted.

Asked if Europe and Japan are through the worst of the effects of the dollar on the US economy, Vince said the US economy is through the worst part of the dollar because the Federal Reserve has communicated they are not going to tighten as much as they planned in December.

The December move was a scare, the FOMC raised rates and indicated it would tighten four times in 2016 even though that was a lot more than priced in by the markets, which triggered a big sell-off. That strengthened the dollar, weakened commodity prices, forcing the Fed to re-orient how much they are going to tighten.

The rest of the world matters a lot to the Fed because there’s more of the world than it used to be; i.e. trade is now more important, and GDP of US’ trading partners matters a lot than they used to be, he concluded.

You can watch the video here.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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