The third quarter recovery we were told would signal the end of the threat to our economy showed promise. But it appears that recovery already may be waning. During the worst of the pandemic-cued job-shedding, 23 million American jobs were lost. From May through September, roughly 11 million of those were regained. September’s total gain of 661,000 in nonfarm payrolls is worrisome to experts, however, suggesting the “recovery” could be over. “This report is massively concerning,” said Nick Bunker, economic research director at job placement site Indeed. “We are not where we need to be, nor are we moving fast enough in the right direction as we head into fall.”
Now comes word the number of Americans filing for unemployment rose to a two-month high the week ending October 10. It’s one of the latest signs unemployment numbers are headed in the wrong direction and the ultimate economic impact of the pandemic could be truly profound. And as the economic skies appear to be darkening once again, the implications for gold could be enormous.
Going the Wrong Way: Initial Unemployment Claims Hit Two-Month High
The unemployment picture seemed to be improving by leaps and bounds. Now it’s suddenly getting worse even as the country has regained only about half of the jobs lost at the height of the pandemic’s economic fallout.The fact that numbers are already showing signs of heading back in the wrong direction is, in the estimation of experts, a terrible sign.
There were 898,000 initial jobless claims (seasonally adjusted) during the week ending October 10. As noted earlier, that figure marked a two-month high in initial unemployment claims. It was also nearly 10% higher than the 825,000 initial claims figure projected for that week by economists in a Reuters poll.
Economists have been quick to register their grave concern over the numbers. “The increase in initial claims is disturbing,” said Chris Low, chief economist at FHN in New York. “It is difficult to see it and not think the recovery is vulnerable.”
Ryan Sweet, a senior economist at Moody’s Analytics, is similarly pessimistic. “Risks to the labor market outlook are weighted heavily to the downside,” Sweet said. “The increased spread of the virus across much of the country could result in an even larger pullback in business activity than expected.”
Billionaire Entrepreneur Mark Cuban Warned There’d Be Days Like This
Back in April, celebrity entrepreneur Mark Cuban said those who were quick to adopt a highly optimistic tone about the economic outlook for the country might not be “factoring in what we are going to see on the other side.” It was a suggestion that returning to the level of economic strength the country enjoyed pre-pandemic could be more complicated than some imagine.
Cuban had more to say about that in another April interview with Fox Business. Speaking to Maria Bartiromo, the billionaire said that, going forward, “companies are going to have to be agile…companies are going to have to build from the bottom up.”
He’s referring to a factor that many have overlooked up to this point, in my opinion. What life looks like for businesses in a pandemic world is still evolving in real time. What life will look like in a post-pandemic world – whenever we get there – remains largely unclear.
The unemployment outlook obviously is not helped by the precarious position of America’s small businesses, which are shuttering at a frighteningly fast pace. A mass closure of America’s small businesses could exert an enormous impact on the nation’s unemployment picture. According to the U.S. Small Business Administration, business with fewer than 500 employees account for roughly 44% of the nation’s economic activity and employ nearly half the country.
Worsening Unemployment Could Mean Even More Energy for Gold
I mentioned at the outset of this article that a possible worsening employment picture could have enormous implications for gold. That’s particularly true in light of the Federal Reserve’s forward-looking agenda recently outlined by Fed Governor Lael Brainard.
In a September Brookings Institution webcast, Brainard indicated that Fed policy would be guided by the effort to achieve the following goals: an average inflation rate of 2% and maximum employment. Notable was the cautiously optimistic tone in which Brainard announced those lofty ambitions. She expects “monetary policy to pivot from stabilization to accommodation” in the coming months, leaving rates at zero for a long time to come.
But the prospect of worsening unemployment suggests we may yet to achieve even stabilization. In my opinion, this raises the possibility that the Fed will have to continue engaging in the most drastic forms of accommodative monetary policy – to include asset purchases of a kind and at a level not seen previously – for potentially many years to come.
Under such conditions, it’s presumable that gold’s underlying fundamentals would not only remain intact but improve in the near term. It’s no secret the metal’s price has been consolidating since August. But experts believe that as long as such historically compelling drivers for gold as generous Fed policy and record deficit spending continue, gold is bound to rise over the long term, despite whatever pullbacks occur along the way.