Forget debt, how about wage growth

Well, I love to say I told you so.

Commerce Department said the US economy grew by an anemic 0.2% for the first quarter. Well below the street’s expectations, but not mine.

Later in the day Fed chief Janet Yellen release the statement from the Open Market Committee, which said the Fed is no longer playing the calendar game when it comes to the next rate hike.

So with the bad GDP number, the Fed has certainly taken out the June meeting for a rate rise. As I have said repeatedly there will be not change in rates this year and here’s one reason.

In Q1 the US had a record inventory build — and still only managed 0.2% annualized growth, which means the quarter grew by 0.05%. So with all that activity of building widgets that were not sold what does that leave for Q2 growth?

Not much room for further manufacturing, unless you want to have price deflation, which the Fed has been fighting for three years.

One other point, which may make the second revision at the end of May an even more disappointing figure is that Commerce said there was deflation in the quarter, which pumped up the anemic 0.2%. If that gets backed out, then we could have a negative GDP print and well on our way into a recession.

So here we are May of 2015 and the Fed is done jawboning about a rate rise or any type of recovery. It’s amazing that with a nearly $19 trillion deficit and over $4 trillion on Fed’s balance sheet we just cannot grow the economy.

Perhaps debt is not the answer, maybe wage growth for the bottom 90% of the populace would be the answer. After seven years in the doldrums, perhaps its worth a shot.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s