How’s the US Economy?

cropped-bob-shapiro.jpg   By Bob Shapiro

How’s the US Economy doing? That depends on who you ask.

The “official” unemployment rate, at 5.7% is a little high by historical standards, but way down from the peak of the Great Recession. The US Dollar is way up in Forex Markets, and that usually means that the US Economy is booming and everyone wants our strong currency. GDP is up again – at a 3.8% annual rate during the 2nd half of last year.

Who could ask for anything more?! Let’s look at these and other numbers a little more deeply.

The government’s unemployment numbers are bogus for several reasons. First, if you’ve given up hope of finding a job, or if you worked at least 1 hour and earned $20 last week, you’re not counted as unemployed. If you have to work part time because you can’t find a full time job – but you want a full time job, then you’re not unemployed. And, if you have to work three part-time jobs to earn enough to live on, then you’re counted as three people working!

Unemployment - ShadowStats

If the Unemployment Rate were calculated the way it used to be calculated, in 1980, then the number would be well over 20% (chart courtesy of http://www.ShadowStats.com)! Looking at the Workforce Participation Rate – how many Americans of working age either are employed or looking for a job – it’s the lowest it’s been for a generation – down several million Americans from 7 years ago.

Retail sales fell 1.7% during the past two months, and with the strong Dollar, and with the collapsed price of oil causing big layoffs in the US oil patch, it looks like retail sales will be declining for a little longer.

The US Dollar is up, but it’s up against a Euro having big troubles right now. Greece may exit the single currency, because it will default on it’s debt, and that might take the whole Eurozone with it. And Japan has been cheapening its Yen to gain competitive advantage. BTW, both Japan and China – the two biggest holders of US Treasury Debt – do NOT want more Dollars, with China’s holdings falling a little during the last couple of years.

$USD 022215

A strong Dollar is a double edged sword. Yes, Americans have more buying power in international markets, which is good. But, that also makes our exports less competitive in foreign markets, while giving imports a competitive advantage here in the US. We can expect the number of layoff we already have seen, because of this, to grow even larger.

GDP is a concept created during the FDR years to make the Economy look better. It weighs government spending as being just as valuable to our Economy as spending by you and me, and just as valuable as business spending and investment. If Uncle Sam taxes Peter to give to Paul, that counts as GDP, even though all that’s happened is that the money has changed hands, with a cut for various government employees.

Housing, which took a big hit starting in 2008 because of the Housing Bubble has not recovered. There still is a huge inventory of Bank Owned homes, and “non-performing mortgages” which remain open. If the US Economy turns down again soon, as I expect, then the housing crisis which never went away will flare up again.

Electricity Production

Durable goods orders are dead flat with the level of 3 years ago – there isn’t even a bump because of inflation of the goods prices. Electricity production is down to the same levels as 12 years ago. We still have almost 50 Million Americans on Food Stamps. Budget Deficits continue, and the lower (sic!) level of $½ Trillion last year is expected to return this year to the $1+ Trillion Budget Deficit level this year (and on into the future).

The FED just backtracked on its trial balloon of raising interest rates soon, and although it officially stopped QE3, the FED still is buying Treasury debt and other securities with both hands. The FED’s Monetary Base still increased by 2.5% after Janet Yellen became FED Chair a year ago.

Monetary Base since Jan 2014

Price Inflation is only 2-% by official numbers, but calculating it the way the BLS used to do it in 1980, the CPI is closer to a year-over-year rise of 8%

The US stock markets are expensive by any measure – unless you’re a cheerleader – with a PE Multiple around 20 for the S&P 500, compared to a 100 average of 14 and an “Expensive” level of 21. Around 90% of reporting companies in the S&P 500 have missed expectations – some big time – so when all the results are in, that PE should surge even higher, into Expensive to Bubble territory.

S&P500 PE Ratio 022215

So again, it depends on who you ask. I’d rather depend on independent reports rather than government numbers subject to interpretation (eg. using the “Birth-Death Model for employment of all the adjustments to the CPI calculation), whether put out by a Democratic Administration or a Republican one. The politicians have too much reason to lie about the numbers, and they have too much to lose by reporting bad news, even if it’s true.

I’m conserving my cash and staying out of the general stock market, preferring alternative investments. You may want to do the same.

4 thoughts on “How’s the US Economy?

  1. Out of curiosity, why would you stay out of the stock market if the economy is doing poorly? Isn’t the idea to invest when everyone is doing poorly so that we can gain when the markets get better? I read your point about the stock market seeming expensive so that makes sense, but what about picking and choosing the right ones?

    Also what other alternative investments are you suggesting?

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    • The Economy and the Markets are not the same thing. While the US Economy has been doing poorly for a few years (or a generation depending on how you measure it), the Stock Market is “priced to perfection.” The PE Ratio on the S&P 500 is around 20 (and likely to rise as earnings continue to disappoint), which is borderline expensive by historical standards. The Markets have been propped up by FED policy and by the outrageous at these levels company share buybacks which benefit options holders to the detriment of most shareholders.

      If these two factors were removed, then we’d see a relationship in which the Markets anticipate an improving Economy. Historically, the Markets have turned up from their bottom several months (or quarters) before the economic statistics turn up, and Markets turn down in anticipation of an Economic downturn.

      On a grand scale, it can be profitable to be able to forecast a rising (or falling) Economy before anyone else (the Markets) do. That’s easier said than done and tends to require you to have the fortitude to be a Contrarian. Right now, I see the Markets as being high, while I expect the Economy to go back into Recession.

      On the individual stock level, research is always a good idea. It can help you do better than the overall Market both in good economic times and bad. There always are some companies in a better position for their stock price to surge than others. I pay $24 a year for Capital & Crisis to find these for me, but there also is Value Line available at no charge through your library.

      By the way, though I rarely have done it, if you believe the Economy is going to tank, your individual stock transactions can be directed toward some stock short selling. By mixing buys of stocks you like with shorts of stocks you hate, you can hedge your bets on the overall direction of the Markets.

      The class of stocks I’m invested in right now is largely in Precious Metals. As an Economy goes down, so too does its currency. Then, measured in that currency (for me it’s Dollars), the prices for Gold and Silver will go up. US Liberty Eagles (Silver or Gold) or other BULLION coins go up and down with the metals’ prices. When the metals go up, it goes right into the bottom lines of miners. So Precious Metals miners stock prices would go up. The metals’ prices now are near the price of production, so there is a built in resistance to further falls in those stocks’ prices. If you don’t want to research individual stocks (www.zealllc.com does this for you), you can buy an index: GDX is a basket of seniors, while GDXJ is a basket of junior metal stocks.

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      • Well written, interesting to learn. Been curious about precious metals, but I feel like Ive missed out on the “boom” from a few years ago when gold prices were skyrocketing.

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  2. Just as all investments, they can go up or down. In 1971, Gold was $35 and Silver was $1.29. Gold wen to $850 in 1980 and Silver went to $50.

    The most recent metals bull market started with Gold at $250 and Silver around $4. During the 70s, there were several decades of government/FED mismanagement of the Economy. Up to 2000, there was a shorter time when the FED and our elected leaders did harmful things, but the extent of the current stupidity is much worse.

    I started with an initial (soft) goal for this time around of $6,000 Gold (24 times increase as in the 70s) and and even softer goal of $300 for Silver. Will they reach those levels – or greatly exceed them? I don’t know. But, I see no reason to change my goals today. When prices get up to $4000 and $100, then I’ll reassess. (Keep in mind that I can be wrong!)

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