Chief Economist (US), RDQ Economics

John Ryding

Chief Economist (US)

RDQ Economics

RDQ Economics provides global macroeconomic consulting services with an emphasis on U.S. economic fundamentals and monetary policy.  
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Our views are driven by consistent application of classical economic and monetary principles and has generated superior anticipation of changes in the stance of monetary policy and of movements in economic growth and inflation.
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The founders of RDQ Economics—John Ryding and Conrad DeQuadros—worked together on Wall Street for a decade, in the independent research space for nine years, and have experience in central banking at the Federal Reserve and the Bank of England.  John and Conrad have worked closely with fixed income, foreign exchange, and equity traders and portfolio managers, which has enabled their analysis and advice to be tailored to a clientele that is focused on trading and investment decisions.

Macroeconomics

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<li>The U.S. GDP report released earlier this week contains some interesting information on U.S. growth and inflation trends and risks for 2019. </li>
<li>First, the economic growth strengthened in the fourth quarter as year-over-year real GDP growth firmed to 3.1%, which made 2018 the strongest year for growth since 2005. </li>
<li>Second, our core measure of demand (C+I) also grew at 3.1%, which means swing factors played little role in this growth performance (indeed the average contribution from inventory investment of 0.4% points was mostly offset by a widening of the trade gap that subtracted 0.3% points from growth). </li>
<li>Third, this strong growth performance accompanied by only a 0.3% point drop in the unemployment rate in 2018 suggests that potential growth in 2018 firmed to around 2½%.  The source of this faster potential growth has been rising labor force participation rather than faster productivity growth, which raises questions to its sustainability since aging of the population is likely to keep downward pressure on participation. </li>
<li>Fourth, nominal GDP growth of 5.3%, which is the fastest since 2005, suggests that monetary policy has reflated this important indicator to a pace that was viewed as desirable when trend real growth was at 3% since this would accommodate a 2% inflation rate.  However, if nominal GDP growth remains above 5% but real GDP growth slows towards trend (of 2½% or lower if the pick up in labor force participation stalls out), we would see inflation rising above the Fed’s target.</li>
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The U.S. GDP report released earlier this week contains some interesting information on U.S. growth and inflation trends and risks for 2019. 
First, the economic growth strengthened in the fourth quarter as year-over-year real GDP growth firmed to 3.1%, which made 2018 the strongest year for growth since 2005. 
Second, our core measure of demand (C+I) also grew at 3.1%, which means swing factors played little role in this growth performance (indeed the average contribution from inventory investment of 0.4% points was mostly offset by a widening of the trade gap that subtracted 0.3% points from growth). 
Third, this strong growth performance accompanied by only a 0.3% point drop in the unemployment rate in 2018 suggests that potential growth in 2018 firmed to around 2½%.  The source of this faster potential growth has been rising labor force participation rather than faster productivity growth, which raises questions to its sustainability since aging of the population is likely to keep downward pressure on participation. 
Fourth, nominal GDP growth of 5.3%, which is the fastest since 2005, suggests that monetary policy has reflated this important indicator to a pace that was viewed as desirable when trend real growth was at 3% since this would accommodate a 2% inflation rate.  However, if nominal GDP growth remains above 5% but real GDP growth slows towards trend (of 2½% or lower if the pick up in labor force participation stalls out), we would see inflation rising above the Fed’s target.


Monetary & Supply Side Takeaways From U.S. GDP