Experts said a third-quarter recovery would be the first big ray of sunshine to follow the onset of the COVID-19 pandemic. Indeed, much of the economic activity in Q3 was promisingly robust, including a pickup of 11 million jobs from May through September. That number of regained jobs is a far cry from the 23 million lost at the height of the pandemic. But it was still a promising start to an economic recovery many said would be unstoppable once it began.
I wouldn’t say it’s unstoppable just yet. The September gain in jobs was anemic in comparison to the months that came before – “just” 661,000. Under normal economic conditions, a monthly gain of 661,000 jobs would be something to crow about. But that’s not the case in the context of what is supposed to be a substantial economic recovery.
Considering the nation recently reached the highest level of unemployment since the Great Depression, the job count is nothing to celebrate. As a matter of fact, it is seen by certain experts as downright worrisome. “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, it appears the unemployment news may be getting worse. It’s true that first-time unemployment claims fell this week to their lowest level since March. But, last week, initial unemployment claims in the U.S. climbed to their highest level in two months – 898,000 (seasonally adjusted). It’s troubling that weekly unemployment numbers could hit such a dubious milestone this far into a supposed recovery. I would say this is another sign that COVID-19 has damaged the economy in a way few thought possible when the pandemic began.
The near-900,000 initial jobless claims took many experts by surprise. Economists polled by Reuters projected the number of claims for that week would come in at a considerably more modest 825,000.
Economists were already on high alert after the weak September increase in job gains. Now I’m seeing expressions of tremendous concern on the heels of this latest worrisome sign.
“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.”
When the novel coronavirus first appeared on the national radar screen, there was no shortage of experts minimizing its expected economic impact. As recently as June, global financial giant Morgan Stanley declared we’d see a “sharp but short” recession and “V-shaped recovery.” Economic activity, they said, would return to pre-coronavirus levels by the fourth quarter.
That hasn’t happened, and I’ve been reading that some aren’t surprised. Back in April, the COVID-19 outbreak was tearing through the economy like a wrecking ball. At that time, celebrity entrepreneur Mark Cuban registered his pessimism about the prospects for a quick recovery. Cuban told CNBC that those who were counting on a rapid rebound were not “factoring in what we are going to see on the other side.” Returning to the level of economic strength the country enjoyed pre-pandemic could be more complicated than we thought.
Cuban voiced more uncertainty about a recovery 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.”
In my opinion, the continued struggles involved in putting Americans back to work provide some validation for what Cuban was talking about. We still don’t know what life is going to look like for business in a world that is forced to co-exist with the pandemic. That continues to evolve in real time. What life will be like in a post-pandemic world – if we ever really get there – also remains entirely unclear. It could well prove to be the case that the influence of the coronavirus outbreak permanently and fundamentally reshapes how business is conducted. If that happens, it’s reasonable to consider that returning to so-called “full employment” may be a tremendous and prolonged challenge.
There is one bit of good news for owners of physical gold. If the unemployment picture continues to darken, I would expect to see the gold values rise based on the way the precious metal has reacted to similar fundamentals through history. This is particularly true considering another driver of gold value increases: the Federal Reserve’s aggressive agenda as reiterated recently by Fed Governor Lael Brainard.
In September, Brainard delivered remarks through a Brookings Institution webcast about the Fed’s way forward. Looking ahead, Brainard said she expects “monetary policy to pivot from stabilization to accommodation” in the near term. As for the target goals of this accommodation effort, Brainard identified two, chiefly: (1) an average inflation rate of 2% and (2) maximum employment. By the central bank’s own admission, this effort could leave rates at zero for a relatively long time – a condition that could be beneficial for gold values.
But there’s something else. The uncertainty surrounding unemployment means we could remain mired in the stabilization phase even longer before turning the corner to accommodation. What if the Fed feels compelled to engage in the most drastic forms of accommodative monetary policy for many years?
If that ends up being the case, it would not be unreasonable to conclude that gold’s underlying fundamentals could improve in the near term. It’s no secret gold values have been moving sideways since August. But certain experts believe gold is bound to rise over the long term. In their opinion, the continuation of historically compelling drivers such as unemployment, generous Fed policy and record deficit spending are favorable circumstances for gold owners.
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