The Federal Reserve has telegraphed pretty clearly that it intends to hike interest rates very soon.
Economists on and off Wall Street believe the economic conditions justify a rate hike during the Fed’s December 15 and 16 Federal Open Market Committee meeting.
However, this position by the Fed and economists is a bit confusing for folks who read the newspaper and watch business television as it seems executives from big companies are actually quite worried and uncertain about things to come. After all, US manufacturing is in recession.
Deutsche Bank’s Torsten Slok has an elegant explanation for these conflicting views.
During a presentation on Thursday, Slok shared this chart (which we’ve seen before) breaking down the mix of manufacturing and services in US jobs and earnings in the S&P 500.
As you can see, US employment, which is a proxy for the US economy, has very little to do with manufacturing, which is exposed to all of the woes in the overseas economies.
On the other hand, the S&P 500 generates the bulk of its earnings from businesses that are propped up by exports and commodity prices.
It’s not exactly scientific, but Slok said that the Fed focuses on the data related to the chart on the left while the media emphasises what’s behind the chart on the right.
Jokingly, he said Ph.Ds in economics, like the people at the Fed, are looking left. Meanwhile, MBAs, like the folks running America’s big multi-national corporations, get a lot of play on business television, which is widely viewed by other folks with MBAs.
For what it’s worth.