See No Evil: The Truth of April’s “Goldilocks” Economic Data

The April non-farm payroll report has been called the “Goldilocks” report, because it apparently provided just the right data markets wanted to see. A better-than-expected job creation number “proved” that the US economy continues to recover. However, the report was not strong enough to spur the Federal Reserve to raise interest rates sooner, which could spook Wall Street.

Yet the rosy mainstream sentiment completely ignores the underlying facts of the report, which Peter Schiff lays out in his latest written commentary for Euro Pacific Capital.

The biggest shock should have been the downward revision of the already weak March numbers, which most people had expected would be revised upwards. Instead, 41,000 jobs were cut from March, leaving only 85,000 hires for the month, making it the worst month in job creation in three years. If March and April were averaged, we would only have about 150,000 jobs per month, numbers that would be indicative of a very weak economy. And don’t forget, April may be revised down next month just as drastically as March. As you dig down, it gets worse…

The fact that this dog of a report could be received like a beauty queen is a testament to how desperate and intellectually complacent Wall Street economists have become. In the days since the report was issued, data that confirms a strong spring rebound has yet to materialize. April retail sales and March business inventories were flat and below expectations. If analysts actually delved beneath the rosy headlines, they would not be surprised that debt-laden consumers, with part-time jobs facing rising costs of basic necessities, were too broke to shop.”

Peter isn’t alone in warning that the economy is less Goldilocks and more Three Little Pigs. That is, a dangerous wolf in the form of a new recession lurks outside the door waiting to blow the house down.

Larry Summers, a former economic advisor to President Obama and the Treasury Secretary under Bill Clinton, also believes the economy is much weaker than the mainstream consensus. The difference is that he blames it on a lack of consumer spending rather than fundamental imbalances created by the Federal Reserve’s market manipulation. Nevertheless, he told Bloomberg that he expects interest rates to remain very low:

I’m worried that the underlying structural growth rate in the US is really going to be very low going forward… I don’t think the days of normal being a 4% interest rate are going to return anytime in the foreseeable future. I don’t think the economy has the underlying strength to maintain a basic momentum of growth at a 2% real rate plus a 2% inflation rate, and I think the increasing awareness of that in markets is going to act as a restraint that keeps medium- and long-term yields low.”

Summers’ analysis will very likely be the excuse for even more Fed stimulus in the future, which is precisely what Peter expects will happen. In fact, Peter forecasts that the economy is on the brink of a new recession and the Fed won’t consider traditional quantitative easing adequate to address the problems. Instead, major deficit spending will be rolled out: “old-fashioned, Keynesian pump-priming stimulus.”

HSBC chief economist Stephen King hinted at the same possibility in a note to clients this week: “The world economy is like an ocean liner without lifeboats. If another recession hits, it could be a truly titanic struggle for policymakers.”

King is saying exactly what Peter has been warning about for the better part of a year. Since the so-called recovery hasn’t really allowed the US economy to grow to the point where the Fed is willing to raise interest rates, the central bank will have to resort to even more drastic measures in an effort to bail out the sinking ship.

Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery — both in the US and elsewhere — has been distinguished by a persistent munitions shortage. This is a major problem. In all recessions since the 1970s, the US Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.”

Of course, all of this lays out a very bullish future for precious metals. Savvier investors may already be preparing for this, if the uptick in investment demand for gold in the first quarter is any indicator. At the very least, it tells us that Wall Street may finally believe that gold has established a strong bottom.

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