Bad weather makes a good excuse for the marked
turnaround in US economic data...
SO I have been shoveling snow all winter. So has everyone else
where I live on the US East Coast.
I have bought plenty of chemical salts for melting
ice. People in my neighborhood bought new snow blowers, too. I see young
people out clearing snow with small plows and shovels. Burning gasoline is
definitely one uptick for the economy. The snow seems to create plenty of
other side jobs as well.
Landscapers have work plowing, removing fallen trees
and branches. In times of severe weather manual labor is up. Then these
laborers spend on consumables at home. Internet shopping is up, and all sorts
of media consumption rises as well. Video games,
movies and Netflix are booming. Retail sales of goods and services will show
spikes as people get set for another storm.
But the recent numbers...? Lower than expected
retail sales, down 0.4% when expected flat. Lower than expected employment
numbers too. Net additions to Non-Farm Payrolls were reported at 113,000 for
January, when expectations were for 185,000.
I am not writing about politics here. I am writing
about interpretation of the numbers. For months the Federal Reserve,
government politicians and the US major media have been touting a growing US
economy basis the positive GDP and falling unemployment numbers.
However, the problem lies in the interpretation and
not in the real figures presented. The unemployment number in the US
represents those unemployed people who are seeking work. Those that have
given up on finding work, at a reasonable pay, are no longer counted. This is
called attrition of the workforce. It means we have fewer people in this
country looking for work, as a percentage of the working-age population, than
any time since 1978.
This number, the Participation
Rate, was last reported at 62.8%. But still, the GDP at last
release was reported at a 3.2% growth
rate. Which sounds strong. But again, while this
number gives the appearance of healthy positive growth, when you delve into
the report it becomes apparent that something is amiss.
Personal Inventories for instance were high, meaning
that goods were produced and not sold yet. Discounting this statistic brings
GDP growth down to an adjusted 2.8%, which is less to brag about.
Away from the headline data, then, the US economy is
not improving as strongly as we might be led to believe. Indeed, I fear it
has flat lined. There are fewer people, as a proportion of the population,
now working. And they have to support those family members that do not have
gainful employment. The media claim it is "baby boomers" leaving
the workforce, but they still need to work. Additionally, the newer generation nicknamed the "millennials"
are also having difficulty finding employment.
If they do find jobs, they are not at reasonable pay
scales. Especially not considering their expenditures for a college
education, and are often without health benefits.
This explains other, recent poor statistics. Because
those that have employment have higher expenses and more dependents. So
people often have to live beyond their means, as indicated by the increase in
unsecured
Consumer Credit. This means there are fewer
discretionary dollars available for the purchase of goods and services.
There is no doubt that many institutional investors
have taken note of these same points. Big-money investors have taken
advantage of last year's rout in the gold price, and are beginning to
rebalance their portfolios by adding bullion back onto their books. Foreign
central banks also look sure to continue adding to their physical reserves as
well. In fact, many other experts believe the People's Bank has been quietly buying gold for China's reserves while underreporting those holdings to the rest of the world.
Whatever the case, gold is in position to resume its
place in the market as the only reliable alternative currency. The recent
emerging markets turmoil has sent a strong signal about the fragile nature of
currency markets. South Africa, India and Turkey were recent darlings but now
are a pariah. After 43 years of our floating and fiat currency experiment, it
remains to be seen whether the more recent monetary experiments by the
Federal Reserve and the European Central Bank, with their continued
machinations and tweaking, will be successful.
Meanwhile, as the east coast of the United States is
bombarded yet again by Old Man Winter, the talking heads in the mainstream
media continue to blame the weakness of the economy on the weather. The
underlying truth tells another story. I think this explains the recent and
well-built rally in the gold price.
