Perspectives Blog

Gaps, not growth

Zach Pandl, Portfolio Manager and Strategist | February 25, 2014

Monetary policy is primarily about “gaps” not growth: the Fed is trying to reduce spare capacity in the economy, not bring about a rapid expansion per se. Despite concerns over cyclical weakness in labor force participation, the unemployment rate is sending similar signals as most other output gap proxies. The output gap improved despite a relatively slow expansion, suggesting weak potential growth. While it’s far too soon to revise any medium…

More heat than light

Zach Pandl, Portfolio Manager and Strategist | October 3, 2013

Recent comments from the Fed have provided relatively little information about future QE tapering decisions. Officials have expressed contradictory views on several major policy concerns, including the state of the labor market. If economic growth continues over the next few months, tapering may commence in December. Following their surprising decision to maintain the current pace of quantitative easing (QE), Fed officials provided more detail…

Income inequality, disinflation and profit growth – the role of globalization

March 10, 2014

Income inequality has tended to rise in both developed and EM. Companies look across the globe to determine where they can manufacture their products at the lowest risk-adjusted cost. We believe that the global unit labor cost arbitrage is likely to continue for many decades. By Marie Schofield, Chief Economist and Toby Nangle, Head of Multi Asset Allocation Last week we discussed rising income inequality in developed markets and the degree to…

Dovish feathers showing through

Zach Pandl, Portfolio Manager and Strategist | April 14, 2014

…oader U6 unemployment rate, the “true” U3 unemployment rate would be around 7.0-7.5% instead of 6.7%. The drop in the unemployment rate is broadly consistent with other measures of economic slack from a verity of sources. The labor force participation rate has declined very sharply since 2007, but 45% of labor force exits represent retirements and 20-25% represents new disability recipients—categories that historically have seen very low re-entry…

What to expect from Janet Yellen’s testimony

Zach Pandl, Portfolio Manager and Strategist | February 10, 2014

…red to something else. And relative to today’s FOMC, Yellen does not strike us as exceptionally dovish. 2. Narrower views on participation rate. For a few years now, economists have debated how to interpret the decline in the labor force participation rate—the percent of adults that are either working or looking for jobs. Based on the growing pile of research notes on this topic in my inbox, it looks like the economics community is closing in on…

European equities – Should investors care about periphery vs. core anymore?

Dan Ison, Portfolio Manager | January 13, 2014

…ns high, even within the region. Many people have forgotten how to invest in a bull market — indeed many market participants (in Europe at least) may never have experienced a true bull market at all. Of this, more later… Unit labor cost evolution, rebased to 100 in 2000 Source: Threadneedle International Limited Spain and Ireland are certainly the poster children of eurozone reforms. Both have exited their troika programmes (bailouts composed by…

Payroll lite

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | August 8, 2013

…from 7.6% in July to a new cycle low and is closing in on Bernanke’s announced 7% threshold for ending QE. This came on a -263K decline in Unemployed with 226K gain in Civilian Employment against a smaller -37K decline in the Labor Force. Outside of that, the report was generally weaker. The Participation Rate ticked down slightly to 63.4 from 63.5 with much of the decline seen among younger workers. Average Hourly Earnings also fell 0.1%, the fi…