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Economic Outlook

The U.S. Recovery: True or False?

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Posted by Arkadiusz Sieron

on Saturday, 11 April 2015 08:32

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.

1 OxhktBU

How does it all affect the gold market? The analysis shows that although the U.S. economy is in much better



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Economic Outlook

Michael Shedlock: Canada in Recession, U.S. to Follow

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Posted by Mike Shedlock - Mish's Global Economic Trend Analysis

on Thursday, 09 April 2015 05:27

Screen Shot 2015-04-09 at 5.50.42 AMMichael “Mish” Shedlock of Global Economic Trend Analysis, explains why Canada, the US’s largest trading partner, is now in recession and how the US is likely to follow as well. He talks about the recent string of poor economic numbers, why he’s been out of the market, and the next trigger for a possible market collapse.



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Economic Outlook

Is The Whole World Slowing Down?

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Posted by John Rubino - DollarCollapse.com

on Monday, 06 April 2015 05:59

That stats just keep getting stranger and, if you're a policymaker or an investor, scarier. According to a (now widely publicized) McKinsey & Co study, instead of deleveraging after the debt-induced crisis of 2008-2009, the world borrowed another $57 trillion. And most of the advanced economies ran their monetary printing presses flat-out. The next couple of charts show what the US and China, for instance, have been up to since 2010:

37204 a

37204 b

Now, conventional economic theory says that double-digit growth in debt and money creation should produce a boom, and that today our biggest problem should be too many people getting big raises at work. Yet that's not the case at all:

Weak Japan business confidence highlights recovery doubts



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Economic Outlook

US Trade Deficit Shrinks; First Quarter GDP Estimate Ticks Up to 0.1%

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Posted by Mike Shedlock - Mish's Global Economic Trend Analysis

on Friday, 03 April 2015 06:09

Trade Deficit Shrinks

Inquiring minds are investigating the Commerce Department report on International Trade in Goods and Services for February 2015, for clues about first quarter GDP.

Highlights

 

  • Exports were $186.2 billion, down $3.0 billion from January.
  • Imports were $221.7 billion, down $10.2 billion from January.
  • Year-to-date, the goods and services deficit decreased $ 2.6 billion, or 3.2 percent, from the same period in 2014.
  • Year-to-date exports decreased $5.3 billion or 1.4 percent.
  • Year-to-date imports decreased $7.9 billion or 1.7 percent.

Balance of Trade

37191 a

GDP Analysis

Recall that exports add to GDP and imports subtract from GDP. Thus my first reaction to the report was that



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Economic Outlook

Big Trouble Looming: Rising Inventory to Sales Ratio

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Posted by Arkadiusz Sieron

on Monday, 30 March 2015 06:45

Under the recent information deluge, we haven’t had the time to analyze a very interesting and disturbing trend. The U.S. business inventory to sales ratio has been rising for months. What does it mean for the American economy and the gold market?

According to the Monthly Wholesales Report, inventories were up 6.2 percent in January from a year ago and 0.3 percent from December. Coupled with weak sales data (sales fell by 3.1 percent from December 2014 and 1 percent from January 2014), the inventory to sales ratio increased to 1.35 in January from 1.33 in December 2014. It means that it would take 1.35 months for businesses to clear shelves, the highest inventory-to-sales ratio since July 2009.

Why is data on business inventories so important? The answer is that the changes in the inventory to sales ratio indicate any supply or demand imbalances in the economy. Inventories rise when supply is greater than demand. Inventories rising relative to sales mean that sales fail to meet demand projections. Thus, the inventory to sales ratio usually reaches its cyclical peak in the middle of the recession, when the economy is slowing down. Indeed, please note three things.

First, that inventories of durable goods jumped the most – by 7.7 percent from year ago, which is generally in line with weak data on news orders for durable goods. Second, contrary to the historical declining trend (due to improved inventory management), we are witnessing a gradual rise since 2013 and particularly since the summer of 2014. Actually, the inventory to sales ratio has reached the highest level since the Great Recession (see the chart below). Third, inventories are rising despite low prices. Thus, this indicates week global demand.

1

The consequences may be significant. The high levels of inventories could make entrepreneurs very



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Economic Outlook

Faber: Decoupling between Economic activity and Asset Markets

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Posted by Marc Faber: The Gloom, Boom & Doom Report

on Thursday, 26 March 2015 07:21

ET Now: Do you think financial markets are very naive in the way they are reacting? The world is fighting for deflation, but despite a global growth scare, most of the major markets are sitting at a record high, be it DAX, the Nikkei or the NASDAQ.

UnknownMarc Faber : Yes. There is decoupling between economic activity and asset markets. If you look at the economies globally, we know that in Europe there is hardly any growth. Can Europe, relative to its poor performance of the last few years, grow this year by 1-1.5%? It is possible, but we understand GDP is not a very relevant measure of economic well-being. In the US, the latest statistics are rather disappointing and in China, we have meaningful slowdown as well as in all resource producers of the world.

John Anderson, my friend who is a very good economist and also has his own consulting firm, calculated that the GDP figures in India are actually overstating economic growth significantly. It does not mean that he is bearish about the Indian financial assets. I am also positive essentially about the Indian assets, but growth is not what the government is publishing.
in Economic Times of India

....more from Marc Faber:

Marc Faber: Indian Stocks can correct by 20%

 



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Economic Outlook

Larry, From 1,300-Year-Old Tibetan Town, China

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Posted by Larry Edelson - Commodities, Stocks, Technical Analysis

on Wednesday, 18 March 2015 05:07

LarryEdelsonI’m now in the 1,300-year-old Tibetan Town, in Dukezong in Yunnan province, southwest China. A mix of mostly Tibetan Buddhists and Muslims, the area, with its dramatic scenery inspired the fictional paradise of Shangri-La described in the 1933 novel “Lost Horizon” by British author James Hilton.

To say the surroundings of mountains, streams, sheep, yack, Tibetan Monks and Imams is a sight to behold is an understatement. I have never seen such peaceful surroundings and beauty!

Tibetan Town is also along the old Silk Road. A trading route that will also be modernized by the build out of China’s Silk Road 2.0, the 21st century version of a trading network that will open Western China image1and trade to Europe, to Middle Asia, to Southeast Asia and even all the way to Germany on the Western portion of the route.



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