Were already in a recession, billionaire warns ahead of GDP report
On Friday the U.S. Commerce Department will issue its GDP estimate for the fourth quarter of 2015. Analysts are predicting that the growth rate will come in at 0.4%, down from a preliminary estimate of 0.7% reported in January.
Arguing that U.S. growth is picking up in 2016, optimists point to the Atlanta Federal Reserves GDPNow forecasting tool, which as of Feb. 17 pegs 1Q growth at 2.6%.
But anecdotally, todays economic landscape feels like a recession to many, including billionaire investor Sam Zell, who told Fox Business last week:
The current environment either suggests that were already in a recession or that were rapidly moving toward moving into recession. World trade has slowed down; the currency issues continue to be all over the place: China going one way, Japan and the euro going the other way. And the uncertainties of this election year contribute to this, so when I look at the prospects, I keep looking all over the world and all over the United States for demand, and the demand is pretty weak. And ultimately recessions reflect falling demand.
4 or more states already on the skids: Bloomberg news also weighed in on the issue, noting that even if the national growth numbers havent yet fallen into contraction territory, pockets of the country already are suffering, particularly those states with oil-driven economies. It cited a Moodys Analytics report that four states Alaska, North Dakota, West Virginia, and Wyoming are in a recession, while Louisiana, New Mexico, and Oklahoma are all at risk.
One Bloomberg survey of economists put the odds of a U.S. recession in the next 12 months at 20%, the highest level since February 2013.
Whereas some experts see bright spots in the housing and service sectors, most analysts agree that the U.S. manufacturing base is in definite recession, thanks in part to the strength of the dollar. The latest PMI report from Markit Economics confirmed that fear.
On the heels of weakness in the rest of the world's PMIs, U.S. manufacturing just printed 51.0 (missing expectations of 52.4) to fall to its lowest level since October 2012, Zero Hedge reported.
Worst conditions in 3 years: U.S. factories are reporting the worst business conditions for over three years, Markit noted. Every indicator from the flash PMI survey, from output, order books and exports to employment, inventories and prices, is flashing a warning light about the health of the manufacturing economy.
Output and order books are growing at one of their slowest rates since late-2012, with exports falling amid weakened global demand and the strong dollar.Hiring has weakened as a result. With backlogs of work slumping to the greatest extent since the height of the recession in 2009 and inventories rising for the third successive month, its likely that firms will come under increasing pressure to cut payroll numbers and production in coming months unless demand revives.
Consumer is last bulwark left: CNBC just reported two other signs of a looming recession: Income-tax withholdings and corporate profits are both shrinking.
With manufacturing in an inexorable decline, the only support left for the U.S. economy is the American consumer. If the consumer were to falter for any reason, that would be a big problem, warned Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
The implications of a U.S. recession are huge for gold. With the Federal Reserve having announced the potential for four interest-rate hikes this year after initiating one in December, a slowdown here could force a major policy reversal. That tacit admission of a Fed error could send gold skyrocketing.
Negative rates could juice gold further: Moreover, the Fed is pretty much out of monetary-policy bullets, with rates already near zero. Whats left? More quantitative easing, of course, the same debt-monetization scheme that helped send gold to all-time nominal highs in 2011. And then theres the new policy tool seemingly on everybodys lips: negative interest rates.
Negative rates are a death blow to savers, who see their bank deposits hit with storage fees. As contrarian economist Marc Faber so eloquently described the quandary of negative rates: Leave a million dollars with a bank, and in a year you get only something like $990,000 back. I would rather want to own some solid currency, in other words gold.