US Recession: What's Really Behind the Economic Data

You just can’t keep a good economy down. At least, that’s what you think upon reading the headlines this weekend.

“Fears of double-dip recession recede,” was the headline in The Financial Times.

Why the receding fear?

The private sector created 235,000 new jobs in the past three months, the paper explained.

And here’s the “good news” report from Bloomberg:

Companies in the US added more jobs than forecast in August, easing concern the world’s largest economy is sliding back into a recession.

As private payrolls that exclude government agencies climbed 67,000, after a revised 107,000 increase in July that was more than initially estimated, Labor Department figures showed today. Overall employment fell 54,000 for a second month and the unemployment rate rose to 9.6 percent as more people entered the labor force. The median estimate of economists surveyed by Bloomberg News called for a gain of 40,000.

Wait a minute. The economy needs 120,000 jobs per month just to keep up with population growth.

Okay…okay… Let’s not quibble about that. The census workers got dumped back onto the unemployment rolls, “causing overall payrolls to fall by 54,000” and the unemployment rate to jump from 9.5% to 9.6%.

Hmmm… Let’s get this straight. Unemployment went up, right? Right.

There are fewer people working now than there were three months ago, right? Right.

And the number of jobless people is still growing too, right? Right.

All of which prompted Mr. Obama, in a moment of candor, to admit that “there’s no quick fix…”

He should have said there’s no fix at all coming from the feds. The economy has to fix itself. But nobody seems ready for that level of candor. Transparency, yes. But still, draw the curtain behind the actors… Let voters see the farce…not the dirty dealings and incompetence backstage.

The level of thinking about what caused the crisis and how to respond to it is pathetic and absurd. Even the deepest thinkers on the subject seem unable or unwilling to consider the matter in any but the most superficial terms. Has the unemployment rate gone up? Has GDP gone up? Never mind about what goes on underneath these numbers…about what they really mean…or about how an economy really works.

Technicians need measures and gauges they can work with. Nobody seems to mind that they don’t really make much sense.

But news from the unemployment front – following a couple of days of rising stock prices – was all it took to allow investors to put aside their worries about a “double dip” recession for the Labor Day weekend.

On the last day of trading they bid up the Dow by 127 points and took a couple of points off bonds and gold. Gold settled at $1251 – just $11 short of its all-time high. Which set us to wondering about the metal. It seems to be in an extraordinary bull market. When stock prices were going down a week ago – gold was going up too. This past week, stocks were going up. Still gold went up too.

Risk off…risk on… Gold doesn’t seem to care. An amazing analysis in The Financial Times told us that investors are now buying gold when they think the risks of DEFLATION are increasing. Doesn’t make much sense…deflation should increase the purchasing power of dollars. No need for gold.

Don’t bother to write and tell us how well gold performed during the Great Recession. Gold was officially money back then. The US government increased the value of gold – by pronunciamiento – in order to reduce the value of the paper currency.

Our guess is that gold goes up when deflation threatens because people expect the Fed to do something rash and stupid – a familiar subject here at The Daily Reckoning.

All of which seems to make gold a “can’t lose” bet. If inflation picks up, gold is, well, golden. If deflation gets a grip, on the other hand, gold goes up too.

But what if nothing happens? What if this Japan-style slump continues? What if the Fed doesn’t do something rash and foolish?

Bill Bonner
for The Daily Reckoning