First quarter economic contraction is all but a guarantee. Over 7 years after the “super recession” started, the economy will almost assuredly enter an “Official Recession” that began in January. The economic data, which is heavily manipulated by the government to such a degree that it has shown the U.S. recovered from the “super recession” of 08’, is beyond ridiculous. A long book could be written on this topic, both how GDP is calculated as well as the C.P.I (nominal GDP growth – C.P.I = real GDP growth), so we will only make a brief mention of this.
Regarding GDP growth, how can a healthy and growing economy have consumption accounting for 70% of the economy while engaging in massive deficit spending, unthinkable surges in government, corporate and household debt with such massive structural issues it NEEDS continual debt financing? The answer is, it can’t. Regarding the C.P.I, if we use how it was calculated in 1980 (which has averaged over 9.0% from the start of 2009-to-present day) and how it was calculated in 1990 (which has averaged roughly 5.50% from the start of 2009-present day), the “super recession” never ended (remember the economy exists a recession after two sequential quarters of positive real GDP growth). This has to do with the countless gimmicks employed in today’s calculation including geometric weighting, hedonic weighting and much more frequent substitutions.
Despite all the gimmickry employed in an attempt to try and fool the American people that the U.S. economy is humming along nicely, it undoubtedly entered at least the first leg of falling back into an official recession territory. This will continue in the near future as the policies to foster real economic growth are absent and have been for 15-years!. Granted, a possibility does exist for the first and even second print of Q1 2015 GDP to show it grew, however should this occur it will a fraction of one percent and by the final print turn negative.
- The holiday shopping season in 2014 was the weakest since 2008. This
speaks volumes as the U.S. in a consumer based nation
- The Labor Market has been nothing short of horrendous! Most recently the
March 2015 payroll gains were just over half of consensus estimates at
126,000. This, however, is distorted as net of the January and February
revisions, March payroll gains were a meager 57,000 or less than 25% of
consensus estimates.
- The Labor Participation Rate hit another low not seen since 1978 or over
35 years ago. This combined with the fact real median household income fell
to a low not seen since 1995 or 20 years ago speaks volumes, especially
because this was in the face of a technological revolution (The Internet and
related technologies) whereby this rare occurrence greatly increases
productivity and therefore substantial gains in median household income
(over the course of a decade or so) should have been the result.
- The holiday shopping season in 2014 was the weakest since 2008. This
speaks volumes as the U.S. in a consumer based nation
- The Labor Market has been nothing short of horrendous! Most recently the
March 2015 payroll gains were just over half of consensus estimates at
126,000. This, however, is distorted as net of the January and February
revisions, March payroll gains were a meager 57,000 or less than 25% of
consensus estimates.
- The Labor Participation Rate hit another low not seen since 1978 or over
35 years ago. This combined with the fact real median household income fell
to a low not seen since 1995 or 20 years ago speaks volumes, especially
because this was in the face of a technological revolution (The Internet and
related technologies) whereby this rare occurrence greatly increases
productivity and therefore substantial gains in median household income
(over the course of a decade or so) should have been the result.
- January retail sales contracted 0.79% (-0.79%) prior to December
downward revision and contracted 0.71% (-0.71%) following December’s
downward revision.
- January 2015 industrial Production contracted January 2015 housing
starts contracted
- February automobile manufacturing contracted
- February housing starts drop like a rock (17% contraction!)
- February industrial production contracted February retail sales
contracted very substantially
- Durable goods orders were flat in January and contracted in February
- March Retail Sales and Industrial Production should be nail in the
coffin that the U.S. economy contracted in Q1 2015’ likely by a materially
degree.
Whether we are correct in our forecast is beside the point as even in the best case scenario (where manipulating economic data is enough to overcome reality), the economy will show to have grown just a fraction of one percent. So even in the best case scenario, this announcement at the end of the month should prove to be a big net positive for the precious metals and may act as a catalyst, confirming a resumption in the precious metals bull market has begun. This of course will kill the talks of a rate hike this summer and for 2015.
David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.
As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?
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