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Why Bill Gross Is Skeptical about US Economic Growth

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Feb. 13 2017, Updated 12:05 p.m. ET

Bill Gross on economic conditions

Bill Gross said in his January investment outlook that the US economic environment is showing momentum. Gross also said that the US economy will see more investment during Trump’s presidency. He believes companies will see capital investment that will help them to increase their capacity, and thus their productivity. Higher productivity is necessary for stronger economic growth (SPX-INDEX) (SPY) (VOO).

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In an interview with Bloomberg Television on February 3, 2017, Gross said that he is skeptical about real US economic (QQQ) (IVV) growth and whether or not it could rise to 3%–4% in upcoming years. The Trump administration has promised higher fiscal stimulus, lower corporate taxes, and deregulation. These steps will help the economy regain its strength.

Labor market and wage growth

According to Gross, the labor market and productivity are highly necessary for real economic growth. Productivity is a major driver for US economic growth in the present scenario. However, he is a little worried about wage growth. The US labor market showed a huge improvement in January 2017. Non-farm payroll employment in the United States (SPY) (SPXL) saw an increase of 227,000 jobs in January compared to 157,000 jobs in December. The January figure beat market expectations of 175,000 jobs.

Wage growth was revised down by 0.2% in January 2017. The declining wage growth is a major concern for Bill Gross. Lower wage growth indicates that there is less money in consumers’ hands, which will impact consumer spending. Consumer spending is important for US GDP.

In the next part of this series, we’ll analyze Bill Gross’s view on central banks’ QE programs.

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