- The media, the Federal Reserve and President Obama continue to ignore the overwhelming evidence out this week, in fact every week for the past couple of months that the U.S. economy has already slipped back into recession
- The last revision to Q4 GDP showed the economy grew by 1% for the quarter, but remember, the government never acknowledges a recession until it’s practically over
- The Great Recession started in December of 2007 but it wasn’t until the fall of 2008 that the government finally went back and revised the numbers down to show when the recession actually began
- Halfway through the recession, the Federal Reserve and Wall Street didn’t even have recession in their forecast despite the fact that we had been in one for more than 6 months
- What everybody is focusing on are the jobs numbers
- We got another non-farm payroll report yesterday and, again, low unemployment, 4.9% and more than 200,000 jobs created
- President Obama, as he peddles his fiction of economic recovery, focuses on the fact that the unemployment rate is low, and we’re creating all these jobs, proving that his policies are working
- He’s trying to take credit for a recovery that doesn’t exist. Let’s look behind the numbers of yesterday’s better than expected jobs report
- First of all the headline number: how many jobs were created? The consensus was 190,000 and we got 242,000 – a big beat
- Not only that, last month’s number up to 172,000
- The unemployment rate held steady at 4.9%, still below the psychologically important 5%
- Here is a detail that President Obama didn’t mention at all: average hourly earnings were expected to rise .2% and that followed the big jump last month of .5%
- If you remember, on my video blog last month I said that was a one-off event
- That increase was the result of all the minimum wage hikes that kicked in in January
- I said that number would reverse by February and that’s exactly what happened
- Instead of getting an increase of .2%, we got a drop of .1%
- That is the first time that’s happened since December of 2014
- It is very rare to get a decline in average hourly wages, because prices keep rising
- In the last 10 years this has only happened 6 times
- In addition to the drop in earnings, hours worked actually declined from an average of 34.6 hrs to 34.4 hrs
- When you take into account that Americans earned less per hour and worked fewer hours you get a total drop in weekly earnings of .7%
- That is the biggest drop in weekly earnings as far back as they’ve been keeping records
- Is this something that President Obama wants to accept responsibility for?
- Here’s some more information that we’re not getting:
- I’ve said for a long time that the reason so many jobs are being created is because we are transitioning from full-time employment to part-time employment
- That is where all the jobs are coming from
- According to the household survey, 88% of the jobs created in February were part time jobs
- That means only 12% of that big 240,000 number were full time jobs!
- If you look further beneath the surface at the type of jobs, you’ll see that 80% of those jobs were in low-paying service sector jobs, many of them being minimum wage
- We actually lost 17,000 manufacturing jobs
- We lost mining jobs
- We lost logging jobs
- We lost high-income jobs that provide benefits to American workers, and we replaced them with low-paying part-time jobs without benefits
- That is why you have so many people showing up for Bernie Sanders or Donald Trump Rallies
- They are hearing about a recovery, but they are living in a recession
- Let me get to some of the numbers that nobody paid attention to:
- The trade deficit came out at $45.7 billion, higher than the expected $43.9 billion
- In fact they revised up the December trade deficit from $43.4 billion to $44.7 billion
- This will subtract from GDP in both Q4 of last year and Q1 of this year
- In fact exports were the lowest in 5-1/2 years
- This is not a recovery
- Donald Trump is the only one addressing this and he thinks the solution is to have better deals and tariffs, but that’s not going to work
- The reason why we have these enormous trade deficits is because we don’t produce
- Manufacturing is collapsing
- Yes, we export some services, but we can’t export all the bartender & food service jobs
- We need less government, lower taxes and a healthier environment for businesses to grow
- The numbers prove that this is just a bubble
- Also, on Thursday, we got the Challenger job cuts report for February
- We had a huge number for January – 75,114 announced layoffs
- We did get a slight reduction in February at 61,599
- If you take January and February combined, we are 20% ahead of last year’s pace
- We also got the February PMI Service Index, coming in at 49.7, lower than the prior month of 53.2
- Manufacturing is already in recession – all numbers are sub-50
- Normally, when you get a Friday when the government releases much better than expected non-farm payrolls – this is the number that everybody watches, if it’s stronger than expected, the markets typically react to that
- That didn’t happen on Friday
- This shows that even though the President, the Federal Reserve and the media want to continue to pretend that the jobs report is evidence of strength in the economy the markets are figuring out that this is not the case
- Gold dropped as soon as the jobs number came out, but had a huge rally to $1280 intra-day
- The dollar immediately rose but sold off on the day and was broadly weaker
- This shows that the market believes the numbers are meaningless and that the Fed is not going to be raising interest rates, in fact the next move is likely to be a cut
- The bad economic data is not going to magically switch over to validate the jobs data. The jobs data will eventually roll over in line with the rest of the weak economic data and the government will have to admit that the economy is in recession
- Let me go over, a little bit, what happened during the week
- First, gold was up about $35 on the week – a 3% gain
- Silver was up 5.3% on the week
- Oil, the star of the week was up almost 10%, closing just under $36
- The U.S. dollar was broadly lower on the week against other currencies, such as the Australian dollar
- The Aussie dollar was up 4.2% – a 7-month high against the U.S.dollar
- The only question is, when is the Federal Reserve going to acknowledge that the economy is really weaker than the jobs number seems to indicate
- I don’t expect the President to ever acknowledge recession, but the Federal Reserve is going to have to do something about these numbers
- It can’t continue to drive looking in the rear view mirror and ignore the reality in front of it
- Janet Yellen has a big stake in the outcome of the election
- The stock market is up, and I believe that the market believes the Fed is not going to take away the punchbowl anytime soon
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