Schork Oil Outlook: Why Recovery Isn't 'Good'
What color are your green shoots?
The string of poor economic headlines in the U.S. continued unabated last week. The S&P/CaseShiller Housing Indices and the May jobs report bookended another grim week; a week that issued daily telltales that the pace of the U.S.’ economic recovery is in serious doubt. Home values (the largest single investment for most consumers) are down and job creation is stagnant.
Specifically, according to S&P/Case-Shiller, the National Home Index “… hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels” [emphasis ours]. On the jobs front, average weekly hours of production workers is no higher today than it was in the third quarter of 2003 while the employment-to-population ratio held below 60% for a 27th consecutive month.
To add insult to injury, headline inflation, thought to be “transitory” by ensconced academics in the Fed and at the Treasury, are causing real economic strain on household budgets in the here and now.
Be that as it may, the U.S. dollar fell 2½% against the euro currency last week, so despite mounting evidence of a sputtering economy, spot Nymex crude oil closed on Friday at 100.22, down a mere 37 ticks on the week.
Despite all of the "second derivative" and "green shoot pontification" that talking heads so lazily relied upon post-recession, economies cannot be forecasted like a sine wave. That is to say — "less bad" never was, and never will be, good, period.
Economic growth is determined by consumption, and consumption is a function of confidence, that is fueled by money.
With all of the money the Fed has made available over the last year, there is plenty of fuel. For example, despite all the various forms of easing that have been employed over the last three years, the velocity of money (GDP/M2) has stagnated at 1.699. To put that into perspective, money velocity averaged 1.751 in the 1980s, 1.999 in the 1990s and 1.842 in the 2000s.
In today’s issue of The Schork Report, we state the bottom line: the lack of money that is being turned over is evidence of an economy that lacks confidence; and without that confidence, this recovery will continue to disappoint.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.