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'Hunger Games' economy may add to Fed dilemma

Thursday, 15 Aug 2013 | 11:31 PM ET
US 'Hunger Games' economy could delay taper
Boris Schlossberg, managing director of BK Asset Management, thinks the low end of the economy is struggling with weak spending, which could lead the Fed to hold off tapering next month.

A divergence in the U.S. economy is starting to resemble the Hollywood film "The Hunger Games" and could sway the decision by the Federal Reserve on whether to wind down its monetary stimulus, an analyst told CNBC.

Boris Schlossberg, managing director of BK Asset Management, said like the post-apocalyptic nation depicted in the blockbuster movie, the U.S. economy boasts a dichotomy of a high income population living very well and the bottom half who are struggling to get by.

A recent survey by the Associated Press points to a widening gap between rich and poor, with the loss of good-paying manufacturing jobs as reasons for the trend.

(Read more: The new American poor: 4 in 5 live in danger of it)

"We really have a 'Hunger Games' economy in the U.S., where the low end is doing very, very poorly, the top 20 percent is doing very well," Schlossberg told CNBC Asia's Squawk Box on Friday. "I wonder if they may hold off on tapering if they begin to feel the bottom end of the scale is just not recovering as well as they think it should be."

While recent jobless claims data show signs of a pickup in the U.S. economy, that has not translated to spurring consumer spending, especially in the low end of the market, Schlossberg said.

"Spending has been horrid. That's the key disconnect if you look at Wal-Mart, McDonald's (and) all the lower end retailers; if you look at Macy's, everybody is missing [sales targets]. So basically people are getting jobs, but jobs are just not enough to get them to consume," Schlossberg said.

Actress Jennifer Lawrence as Katniss Everdeen in "The Hunger Games."
Source: Lionsgate
Actress Jennifer Lawrence as Katniss Everdeen in "The Hunger Games."

On Thursday, Wal-Mart, the world's biggest retailer, posted disappointing quarterly sales of $116.9 billion, from a projected $118.5 billion, as shoppers pinched by higher payroll taxes and gas prices made fewer trips to its stores. The world's biggest restaurant chain McDonald's, meanwhile, reported quarterly profit below expectations in July, and said sales for the rest of the year are expected to remain "challenged."

(Read more: Wal-Mart sales slip, outlook 'cautious')

U.S. employment data on Thursday, however, showed that the number of jobless claims fell to a near six-year low last week, while consumer prices rose broadly in July, which could result in the Fed moving closer to curbing its $85 billion a month bond buying program.

But Schlossberg argues that a well-employed population that is not spending is a bigger concern for the Fed.

"They [Fed] are much more sensitive than just about any actor in the market to the idea of consumer health," Schlossberg said. "They really want to see a really robust, momentum driven consumer before they want to let go of the pedal as far as monetary policy goes."

The University of Michigan's Consumer Sentiment Index reading set to be released on Friday is going to be a key indicator to show the state of the U.S. consumer, Schlossberg added.

(Read more: Worst case for Fed taper: mere market 'indigestion'?)

"That's going to be very interesting to see how poorly it prints relative to where we stand right now and I think that could have an impact on the dollar as well," he said.

—By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu

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