Deception in economic data – we need to consider more

Schwaben small S                       Schwaben Blog


May 29, 2015


Weekly Statistics:


Today Week Ago Year Ago
29-May-15 22-May-15 29-May-14
S&P TSX 15,036 15,200 14,604
S&P 500 2,114 2,126  1,920
DJIA 18,052 18,232 16,698
OIL $59.93 $59.93  $93.23
USD vs CAD 0.7995 0.8165 0.9051
Gold $1,189 $1,205  $1,260


The Gross Domestic Product (GDP) of the United States contracted at a seasonally adjusted annual rate of 0.7 percent in the first quarter of 2015 instead of 0.2 percent growth, which the government estimated last month. Harsh weather, a stronger dollar and a strike at the western ports of the US could be the possible reasons for this contraction. A rising dollar has curbed US exports by making American goods more expensive for importers and which in-turn has created a trade deficit.  We believe that this contraction is a temporary setback in the growth story of the US and the economy will rebound and grow at a decent pace as it did in 2014, after the US GDP contracted by 2.1 percent in the first quarter of 2014. One of the major economic indicators that we believe is imperative for US growth is the unemployment rate. More than 3 million jobs were created last year, the most since the late 1990s. Also, the real median incomes are up 3% in the past year to about $54,578 in current dollars, the fastest growth since 2007. According to MarketWatch, consumer spending accounts for up to 70% of the US economic activity. With a significant correction in oil prices, and rising incomes, consumers are expected to spend more than they did last year and which can give a boost to the US economic growth. Though the economy is not growing at a significant pace but it is certainly not shrinking over the longer term. The Federal Reserve is debating about raising interest rates (no specified timeline yet) and major economic indicators like housing starts, median income, unemployment numbers etc are all pointing towards a growing and a solid US economy. This will definitely increase the Fed’s confidence in the US economy before they decide to finally raise the interest rates, after 9 years. Considering the current market conditions we believe that a rate hike can be expected in late Q3 or early Q4.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch, Trading Economics


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