The Week Ahead – CES: A glimpse of the future?

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

The Consumer Electronic Show is like Christmas for the tech lover. This year one of the major highlights was the focus on autonomous driving, with both the Rinspeed Snap and Toyota’s e-Palette concept providing samples of a world with self-driving vehicles. As artificial intelligence becomes more prevalent in our everyday lives how will the world look in twenty years? Looking back at 1997, half of the United States accessed the internet via America Online, Amazon was an online bookstore, Real Player was the video stream software of choice, WiFi was just introduced, IBMs AI Deep Blue defeated world champion chess player Garry Kasparov, a small company called BackRub decided to change their name to Google, DVDs first went on sale, and we accessed all of these services through a 56K modem. 

This initial wave of technology ushered in U.S. GDP growth of 4.5% in 1997 followed by 4.5% in 1998, 4.7% in 1999, and 4.1% in 2000. Why aren’t we seeing those types of growth rates these days? I think it’s due to a combination of demographics and the second wave of technology. We’ve said before, wage inflation typically is a leading signal for inflation in the broad economy. 10,000 baby boomers are retiring every day which means 10,000 experienced and higher wage earners are leaving the job force and being replaced by cheaper replacements. Technology 2.0 is building on what has been built out over the last twenty years and allowing individuals and companies to become even more efficient. Efficiency at some point turns into deflation, as jobs and products are consolidated at a lower price level. The global economy is continuing to evolve and staying anchored to views that a healthy economy needs to grow at 3-4% may need to be reevaluated.

The main attraction for the week ahead will be the advance report on GDP for the fourth quarter of 2017. If we get a reading of at least 3.0%, that would be the third consecutive quarter above 3.0%, something not seen since before the great recession. Another reading above 3.0% would also likely position the Fed to initiate the first hike of the year at their March meeting. The market is currently pricing in a 73% chance for a rate hike in March.

Data deck for January 20- January 26: