Gold News Monitor originally sent to subscribers on June 8, 2015, 8:03 AM.
The U.S. economy added a robust 280,000 jobs in May. What does it mean for the gold market?
According to the Bureau of Labor Statistics’ current report, total nonfarm payroll employment increased by 280,000 in May, the largest gain since December and much more than the 225,000 that economists expected.
Unemployment rose by 0.1 percent to 5.5 percent. Paradoxically, this is also positive news, since more people were back in the labor force and actively sought jobs. Moreover, the surge in hiring in May also boosted wages, which rose by 2.3 percent over the past 12 months to $24.96 an hour, on average.
Because the headline number was rosy, it suggested that the economy was recovering after the very weak first quarter and boosted expectations for a U.S. interest rate hike in September. In consequence, the greenback appreciated, while gold fell to an 11-week low. Without the new weak economic data or strong fears on Greece, the theme of strong momentum in the U.S. economy and the expected rise in the interest rates could dominate the sentiment and put pressure on the yellow metal.
However, the U.S. labor market does not look so healthy beneath the surface. The sad truth is that the economy is adding only low-productive jobs. On Thursday, the Labor Department said that the U.S. productivity in the first quarter fell by a revised 3.1 percent annual pace instead of 1.9 percent. Although the employment increases were widespread (except mining), more than half of the total jobs gains were in the three lowest paying sectors: education and health, leisure and hospitality, and temporary help services. This calls into question the recovery in the U.S. labor market, since the goods producing sectors, i.e. the most productive sectors of the U.S. economy, added only 6,000 jobs. This is important, because the leisure and hospitality jobs are paid low hourly rates and work only about 26 hours per week, which means that there are essentially one-third jobs (annualized pay equivalent is just $16,000, while in the goods sectors the average pay amounted to $47,000 in May). What is more crucial is that job gains in the other two segments were funded by government health and education programs. Therefore, such job gains are not necessarily positive for the economy, since they are funded by money extracted in taxes from the productive sectors of the U.S. economy.
The key takeaway is that the May U.S. nonfarm payroll report was rosy, which is bad news for the gold market, as it may boost expectations for the interest rate hike and deteriorate the sentiment toward yellow metal. However, from the fundamental perspective what really matters is not the aggregate headline number, but the quality and mix of the nonfarm payroll report, which were not so healthy.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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