The U.S. economy added only 160,000 jobs in April. What does it imply for the Fed policy and the gold market?

Total nonfarm payroll employment rose by just 160,000 in April, according to the U.S. Bureau of Labor Statistics. The pace of hiring in the U.S. slowed down compared with 208,000 job gains in March (after revision) and with 232,000 jobs added on average over the prior 12 months. The recent job gains were much lower than expected (200,000). Additionally, the change in total nonfarm payroll employment for March and February combined was revised down by 19,000. Job gains occurred in professional and business services, health care, and financial activities, while mining continued to destroy jobs.

Let’s face it: the U.S. economy added the fewest number of jobs since September 2015. And the household survey was far weaker than the payroll survey (employment declined by 316,000 according to the former report). As one can see in the chart below, the downward trend in total nonfarm payrolls is clear.

Chart 1: Total nonfarm payrolls (change in thousands of persons) over the last 12 months.

The slowing growth in job gains is also presented in the next chart.

Chart 2: Total nonfarm payrolls as percent change from year ago from 2011 to 2016.

As one can see, the annual percentage growth in total nonfarm payrolls started slowing in February 2015. Since then, the U.S. economy has created jobs month after month, but at an increasingly slower pace. The downward pressure on job growth continues. The weak number of job gains in April lowers the chances of a rate hike in June, which is good news for the gold market (however, since gold reacted by rallying only $10 or so, it could be the case that gold will not really respond to additional positive factors and it will start to slide once the hype about the payrolls dims).

Other Labor Market Indicators

Other labor market indicators were mixed. The unemployment rate was unchanged at 5.0 percent, but the labor force participation decreased to 62.8 percent, after an increase in March. The same negative dynamics was observed in the employment-population ratio, however, it is too early to say anything certain about the nature of this decline. On the other hand, the number of persons employed part time for economic reasons was about unchanged in April, while the number of long-term unemployed and discouraged workers decreased. Moreover, the average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.5 hours in April. Importantly, average hourly earnings increased by 8 cents to $25.53, implying a 0.3 percent rise over the month and a 2.56-percent rise over the year. This jump followed an increase of 6 cents in March. The continued positive dynamics in worker pay is what the Fed officials like the best, since the revived wage growth would be a signal of an accelerated pace of inflation and thus it could reassure the Fed that the next interest rate hike is the appropriate move.

Conclusions

The key takeaway is that the April Nonfarm Payroll was disappointing, as the U.S. economy added the fewest number of jobs in seven months. The much lower than expected data increased the expectations that the Fed would delay further interest rate hikes, although there is still one more employment report before the June FOMC meeting. The Fed claims to be data-dependent and the recent data is not encouraging. In consequence, the price of gold jumped 1 percent on Friday, after the report was released. It was the biggest gain in a week, which helped to reverse the downward trend started on Monday, after gold pushed above $1,300 per ounce. The weak payrolls should improve the already bullish sentiment towards gold among investors, however, at the same time please note that we saw a bullish piece of news for gold and the latter didn’t move above the recent high, which is a bearish sign. Moreover, there is a risk that the U.S. dollar’s downtrend will reverse, which could exert some downward pressure on the yellow metal.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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