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.”
