The Growth Mirage

Despite disappointing economic data, there continue to be widespread expectations of a period of stronger economic growth just ahead. This growth mirage draws thirsty investors and increases the likelihood that interest rates will continue rising over the near-term.

September 05, 2013   |    By Scott Minerd

Global CIO Commentary by Scott Minerd

US economic growth is like a mirage; strength appears on the horizon and then never materializes.


Throughout this year, the consensus view has been that current economic weakness is justified and we are just one or two quarters away from faster growth. Now, in the third quarter we are hearing the same arguments, although growth targets are starting to dip. I call this the growth mirage. In the heat of the desert, the eye perceives water on the horizon, but the closer one tries to get, the farther away it moves – until the traveler realizes that he has been chasing an illusion caused by shimmering layers of hot and cool air. The effects of higher mortgage rates continue to flow through to weakness in the U.S. housing sector and although some pundits point to resilience in manufacturing and consumer confidence as positive economic signs, my view is that a meaningful downshift in data could yet occur. Retail sales and chain-store sales disappointed during the critical back-to-school shopping season. And although we have had four fairly strong months of job creation, most of the new jobs have been part-time, explaining why aggregate earnings are flat and why spending has not increased with personal income gains. Over the coming month, uncertainty and market volatility will likely rise as the U.S. Federal Reserve makes its decision on tapering its asset purchases, Congress begins its fractious budget and debt-ceiling debates, Middle East geopolitical risks increase, and German elections take place (on September 22). The good news for the U.S. economy is that while economic activity is not robust, the current modest pace of growth is unlikely to be derailed. As one of my favorite economists, Ed Hyman, said, there is not a lot of speed in the economy, but at least there’s a lot of torque. All of this means an increased risk that interest rates will move higher as investors digest new economic data.

Part-Time Jobs Driving Employment Growth

Growth in part-time jobs has been the main contributor in overall employment increases since the start of 2013. Over the past seven months, the average monthly growth in full-time jobs has been 32,000, while the average number of new part-time jobs was 104,000. After falling from the recession peak of 20 percent, the share of total jobs which are part-time has recently rebounded to 19.6 percent. The increase in part-time jobs may be partially attributable to the upcoming change in healthcare laws, requiring employers to provide health insurance to full-time employees but not for part-time workers. If the trend continues, the increasing share of part-time workers may add downward pressure to aggregate labor earnings and reduce consumption growth.



Source: Haver Analytics, Guggenheim Investments. Data as of 7/31/2013. *Note: The seasonally adjusted data for full-time and part-time workers does not add up to the seasonally adjusted total employment because total employment is seasonally adjusted independently of full-time and part-time workers.

Economic Data Releases

U.S. GDP Revised Higher, Recent Data Mostly Positive

Euro Zone Emerges from Recession as Confidence Heads Higher, Prices Up in Japan

Important Notices and Disclosures

This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.


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