Which Way The US Economy?

January 14, 2015

There have been a lot of news items lately which will / could have an impact on the US Economy and the Jobs outlook. The US currently has about 140 million people working, a rise of 2 million over the last 7 years. At less than 24,000 rise per month, that doesn’t come close to satisfying the demand for jobs with roughly 120,000 Americans entering the job market each month. The US would have needed to create 10 million new jobs during the last 7 years to do that.

Government numbers tout the growth in US GDP, growing around 2% a year for the last 5 years, well below previous economic recoveries following recessions. But, the “Official” numbers use a low-balled accounting for price increases.

A truer picture, using CPI rises based on how the BLS used to calculate it back in 1990, shows that adjusted for inflation, GDP has fallen every year since 2004. (It’s a LOT worse if you adjust the nominal GDP by the 1980 CPI methodology, with GDP shrinking for over a generation!) Please see http://www.ShadowStats.com for more detail.

So, what’s in the news?

The Minimum Wage has gone up in 20 States so far, with more likely. While a couple million Americans will see a bump up in their hourly pay, a few minimum wage earners will see their hours cut (possibly to zero) or their benefits reduced, as their employers’ profits are hit. And, new positions will be reduced as the Minimum Wage gets factored into prospective employers’ hiring decisions. We can expect higher unemployment rates going forward for minorities, especially for black teenagers.

EPA Coal Regulations announcements are being put off. This may sound like good news for coal miners, but it’s not. Building a mine, and the infrastructure needed to support it, takes a lot of money. If you don’t know what rules are about to come crashing down on you, the wise thing to do is delay your investment decision. Short term jobs (a year or so) to build the mine and infrastructure don’t happen, and the full time jobs needed to operate the mine don’t get created. And, since building a new mine partly is to replace existing mine supply which is being used up, available coal energy shrinks.

And what about construction of new coal fired electric power plants? Uncertainty over EPA rules means that those decisions are deferred as well. Past regulations have cost consumers a lot of money through higher electric prices, and shrinking supply will continue the damage to consumer pocketbooks.

Consumers should be reaping the benefit of falling electric prices as natural gas prices have fallen in half recently, but EPA anti-fracking moves have slowed construction of gas fired electric power plants.

The EPA, and the democrats’/greens’, anti-energy agenda are screwing the consumer big time. That’s unlikely to change for at least 2 years.

Crude Oil Prices have fallen from around $110 a barrel to $45 over the last 6-8 months as new production from the oil shale industry, almost entirely in the US, has made for a supply surplus. That’s the way the market works. Since the shale oil wells cost more per barrel than other types of well production, that is the source which will be reduced first.

Those cuts will be gradual since the industry hedges the price on the futures markets, and because once a well is drilled, the cost to keep it running is low compared to the “All-In” cost. As new shale oil well drilling gets put on hold, the shale oil supply will be reduced as existing wells run dry (shale oil wells have a much shorter life than other wells – around 3 years). We are seeing that already as the rig count, and oil patch employment, have fallen over the last few months.

On the plus side for our Economy is the fall in oil – and gasoline & home heating oil – prices. The CPI likely will be lower as a result, and business costs also will go down, exerting a positive effect on profits.

But those companies will be undergoing greater competition, both in the export markets and domestically, against now lower costs from foreign companies, especially since the Dollar has gone up dramatically on world Forex markets.

Many of ObamaCare‘s tax and regulatory provisions went into effect with the new year. These will be negative for the Economy, and by extension, also for the employment outlook.

As a final note, let’s listen to what Dr. Copper has to say. This metal is used throughout our Economy. Trends in the price of copper reflect the demand for the metal, and companies’ perceptions of where the Economy is headed.

The price of copper has fallen from around $3.75 two years ago, to $3.25 six months ago, to $2.54 per pound as I write this today. The breakeven cost for copper is around $2.80 (although the lower oil price likely will lower this somewhat). So, Dr. Copper is telling us to batten down the hatches.

The US Economy, after an anemic recovery from the Great Recession, is about to fall big time once again.

Robert (Bob)  Shapiro is self-taught in Austrian Economics and has consulted briefly for the governments of Mexico, Greece, Portugal and Spain. He has traded Gold & Silver and their stocks since 1970. Bob Shapiro’s blog is http://us-issues.com

The melting point for silver is 961.93 °C - 1235.08 °K