Gold News

Blaming the Slowdown on the Snow

Bad weather makes a good excuse for the marked turnaround in US economic data...
SO I have been shoveling snow all winter, writes Miguel Perez-Santalla at BullionVault. 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.
Yet then the government reports the Unemployment Rate down to 6.6%? 
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. 
Sure, maybe the recent good news of continued growth in China may spur more growth in the US economy. But again, the headline data obscure the true picture there. It's become clear that China's credit and investment bubble is ready to burst.
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.

Vice president of business development for BullionVault from 2012 to 2014, Miguel Perez-Santalla is a fierce advocate for retail investors, and a regular speaker at industry and media events. With over 30 years' experience in the precious metals business, Miguel has worked at the United States' top coin dealerships, as well as international refining group Heraeus.

See the full archive of Miguel Perez-Santalla articles.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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