Fed’s Optimism About Economy Crushed By Actual Data
The Fed appears to be skipping merrily toward an interest rate hike this afternoon, which is supposed to signal that the US economy has recovered. But as Peter Schiff has been pointing out relentlessly on his Facebook page, the actual economic data tells a completely different story. In fact, the economy isn’t nearly as good as advertised.
This is precisely why Peter and many other economists say they don’t think interest rates will stay above zero for very long, even if the Fed does indeed go forward with a hike.
Here are just a few of the warning signs over the last week or so.
Initial jobless claims surged to five-month highs.
The employment picture is the major bright spot the Fed keeps pointing to as it rushes toward a rate hike, but horizon looks dim. Initial jobless claims surged 13,000 to 282,000 last week, the highest level of initial claims since July. Economists had expected the initial claims to remain flat at 269,000.
The number of continuing claims also spiked, coming in at 2.24 million, up from 2.16 million in the prior week. That 3.8% increase represents the second largest weekly rise in continuing claims since 2008.
Add that to the fact that the overall labor force participation rate remains low and the number of part-time workers remains high, and suddenly the employment picture looks a lot less inspiring.
Manufacturing PMI plunged to the lowest rate since 2012.
As Business Insider put it, the US manufacturing sector “is still in tatters.” Markit’s Manufacturing PMI dropped to 51.3, its lowest since October 2012. New orders crashed to the worst level since September 2009.
“December data indicated a sharp loss of growth momentum across the US manufacturing sector,” the report said. As Markit points out, manufacturing PMI is an important overall economic indicator:
Although manufacturing only accounts for around one-tenth of the economy, the Manufacturing PMI exhibits a high correlation of 77% with GDP as industrial activity has an important cyclical impact on other parts of the economy. With many sectors such as transport and business services dependent upon the manufacturing economy’s health, the downturn in the survey data sends a warning signal that the US upturn appears to be rapidly losing momentum as we move into 2016.”
US industrial output had its biggest decline in 3.5 years.
Industrial output fell 0.6%. This follows on the heels of a downward revision of October’s number to 0.4%. It was the third straight month of declines. CNBC called it a sign of weakness that could moderate fourth-quarter growth. The drop was the steepest since 2012.
According to CNBC, durable goods declined 0.2% overall, with the largest drops in categories including electrical equipment and motor vehicles. With output declining, the percentage of industrial capacity in use fell to 77.0% from 77.5% in October.
Empire State Manufacturing Survey declined for a fifth straight month.
The December 2015 Empire State Manufacturing Survey indicates that business activity declined for a fifth consecutive month for New York manufacturers. Meanwhile, labor market conditions deteriorated noticeably, with survey indicators pointing to a sharp decline in both employment levels and hours worked. In fact, the average workweek collapsed to its lowest level since the height of the economic crisis in 2009.
These actual economic numbers reinforce what Peter Schiff has been saying – even if the Fed nudges rates up later today, it will not be the liftoff we were originally promised. It will more likely be something resembling a hoverboard that will fall back to earth pretty quickly. Even a majority of mainstream economists agree with Peter, saying they don’t expect a rate hike to stick.
Simply put, the data doesn’t lie.
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