Why the US dollar is the world’s problem

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Katie Martin (0:36)

Thank Pushkin.

The US economy really seems to be getting something right. I mean, we've had some slightly dodgy numbers recently, but the gap between where the US is and where the rest of the world is seems to be getting wider. Today on the show, we want to know, what is the US secret source? And more importantly, what does this mean for investors and markets and for the rest of the world?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here in London, and I'm joined finally after a little break by Rob Armstrong, who writes the Unhedged newsletter in New York. Rob, how are you doing?

Rob Armstrong (1:17)

I'm doing well. I'm just back from Switzerland, where I met a lot of very important banker types.

Katie Martin (1:24)

And I'm sure you were a sparkling company for the very important banker types, but what I want to know is, what is your main contribution to the US economy?

Rob Armstrong (1:32)

Well, my son eats so much at this point, he's 14, that I think he's actually having a noticeable effect on US food prices.

Katie Martin (1:43)

Yeah, yeah. I own one of these specimens as well. They can really pack it away.

Rob Armstrong (1:49)

They will screw up your refrigerator.

Katie Martin (1:50)

That's bad news. So listen, tell me, why are we talking about the US economic miracle when just a few days ago, we had some actually quite sort of stinky first quarter GDP numbers from the US?

Rob Armstrong (2:04)

Yes, the headline was deceptive. So everybody was looking for 2.4% growth in the first quarter. That's quite fast growth.

We got 1.6.

Katie Martin (2:15)

And that's annualized. We should remind our listeners because you do it differently in the States from how we do it. So that's 1.6% growth rate for the year.

Rob Armstrong (2:22)

Which would be a round trend growth rate for the US economy. But the US economy has been growing faster than that.

Katie Martin (2:30)

Yeah, it was like 3.4, was it, in the previous course?

Rob Armstrong (2:33)

So that would be a huge slowdown. That would have the growth growing away. However, that headline was really deceptive. There's all these weird puts and takes in GDP numbers for things like inventories and the trade deficit and whatever. And if you look through those rather technical factors, the underlying picture of the US economy continues to be one of remarkable strength.

So, if you look at personal consumption expenditures, they are chugging along at about a 6% annualized rate still.

Katie Martin (3:05)

Is this the mighty US consumer striking again?

Rob Armstrong (3:08)

We do not bet against our propensity to shop. It's not just the mighty US consumer. Investment in the US is positive. Housing investment, corporate capex is strong. The manufacturing sector, which was kind of the loser or the class dunce of the US economy during COVID, is taking off its dunce cap and seems to be growing again.

So, looking through the headline, we see a US economy that continues to outperform.

Katie Martin (3:41)

Is it really valid to like say, okay, here's the number, but if you take out this and you put in that and you take out this and you put in that, then it's actually better than expected? Surely you should just look at the number and trust the number.

Rob Armstrong (3:53)

Yes, but as always with accounting, there is some smoothing.

There will be volatile numbers that will kind of correct over the course of a whole year. So I think there's some validity with an individual quarter saying this is stronger than it looks because this little bit went down in the first quarter that we know for mechanical reasons is going to go up in the second quarter. But I agree with you, the road of adjusting headline numbers is the road to hell and perdition in general.

Katie Martin (4:25)

Yes.

Rob Armstrong (4:26)

It leads to adjusted EBITDA, right? Where financial truth goes to die.

Katie Martin (4:32)

Yeah, it leads to being one of those guys on the internet.

Can you take it a stage further though? Can you argue that actually the US economy is overheating? Because what the knock on effect of all this is, is that inflation just is not going away in the way that we hope.