Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The U.S. Economic Recovery: True or False?

Economics / US Economy Apr 13, 2015 - 02:36 PM GMT

By: Arkadiusz_Sieron

Economics

The stronger than expected February's job market report fueled expectations that the Fed will increase interest rates sooner rather than later. We believed that market reaction was a bit exaggerated, and suggested in the Gold News Monitor not taking the hike for granted. The U.S. recovery is not as strong as it is commonly believed (as it was confirmed by the downgraded Fed's economic projections) and there are many downside risks, such as Greece's crisis, stubbornly low inflation, sluggish wage growth, the Chinese and global slowdown and too strong a greenback, which may stall the Fed's hike.


For sure, there are many positive indicators for the American economy: solid GDP growth in 2014, and low unemployment and inflation rates. Consequently, the real disposable personal incomes as standards of living are rising. Indeed, the U.S. economy looks definitely brighter than a few years ago. It also performs better than many other developed countries, thanks mostly to a freer economy and a much more flexible job market.

On the other hand, if you scratch beneath the surface, the outlook for the U.S. economy is grimmer. We have already written in past editions of Gold Monitor News about rising inventories to sales ratio, decreasing new orders for durable goods, falling U.S. retail sales for three months in a row (in February) and the unemployment rate drop in February was mostly because people gave up looking for jobs. Some economists also question the accuracy of the data published by the Labor Department, and rightly so. February was another month with a huge discrepancy between the Labor Department's job survey and the Census Bureau's American Household Survey. According to the latter, the U.S. economy added only 96.000 new jobs in February, much below the 215.000 expected and the 295.000 reported by the Labor Department.

Why does such a discrepancy exist? There are many differences between those two reports, but the most important is that the nonfarm payroll survey does not include agricultural workers and the self-employed. It turns out that if we add those categories, the number of jobs actually fell from January to February. Please note that this fact also explains why the Labor Department's data understate the job losses in the energy sector. The truth is that the U.S. oil and gas industries rely heavily on the use of independent contractors. Therefore, the workers in the energy sector are not counted as part of the nonfarm payroll, so layoffs in this industry are not covered in the establishment of employment statistics.

Another significant difference is that the payroll survey double-counts many workers who change jobs or have few part-time jobs. There are also other problems with the Labor Department's statistics, such as an inaccurate model of birth and death of companies and seasonal adjustments. It is worth pointing out that the disparity between the payroll and household employment surveys is cyclical and widens during recessions, which may indicate that the U.S. recovery is based on rather fragile foundations. This is perhaps why the Federal Reserve's labor market condition index, which combines 19 labor market indicators, actually fell from 4.8 in January to 4 in February. Does this look like a strong job market?

Other main macroeconomic indicators also do not look so rosy. First, the revised data show that GDP expanded in the fourth quarter at a 2.2 percent annual pace, down from the estimated 2.6 percent (advance estimates). Even more importantly, the Atlanta Fed's real-time monitor of the U.S. GDP indicates that the economy has slowed considerably over the first quarter of this year. The FOMC (in its March statement) finally noticed that "economic growth has moderated somewhat." And 'somewhat' means in this case the 0.3 percentage point, since the FOMC's members downgraded its economic growth median projections for this year from 2.6-3.0 percent in December to 2.3-2.7 percent.

Second, the low inflation may not be transitory as Fed believes, but a sign of a coming recession. We do not consider disinflation or deflation as negative phenomena, but only when they reflect rising productivity. At present, the falling producer prices (see the chart below) signal the economic slowdown in America and globally. How else would you explain the expected fall of all nine key commodity price indices or the decline in new factory orders? No, do not blame the weather.

Graph 1: Producer Price Index (all commodities) from February 2010 to February 2015.

Producer Price Index

How does it all affect the gold market? The analysis shows that although the U.S. economy is in much better shape compared to other countries or to itself a few years ago, the full recovery was probably proclaimed too early. It is unclear whether the Fed examines the whole spectrum of data or focuses on official statistics; however we believe that sooner rather than later it will become obvious that the U.S. economy and labor market are not as strong as the February job report suggested.

To some extent, the Fed admitted it in March, by revising its projections on economic growth (it downgraded its forecasts of the GDP growth in 2016 and 2017, which clearly shows that it is not only a harsh winter which softened the economic activity), however it increased its expectations about the employment rate.

Therefore, the Fed may slow down the hike of its interest rates (or undo it if Fed raises it eventually) even further (the U.S. central bank also cut its expectations for the level of federal funds rate over the next couple of years), which will positively affect the gold prices.

Thank you.

We hope you enjoyed the above article. If you're interested in reading more, please note that we focus on the economic fundamentals in our monthly Market Overview reports and we also provide Gold & Silver Trading Alerts for traders interested more in the short-term prospects. If you're not ready to subscribe today, please sign up for our mailing list and stay up-to-date. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in