The report on the employment situation was published on Friday by the U.S. Bureau of Labor Statistics. The total nonfarm payroll employment increased by 295,000 in February, while the unemployment rate fell to 5.5 percent. Is it necessarily bad news for the gold market?
It seems that investors believed so, because the gold prices went lower sharply after the U.S. jobs report was released. The data was stronger than expected (295,000 jobs added versus 240,000 forecasted), which apparently scared off investors expecting the Fed’s hike at the end of the year or even in 2016. Now, the surprisingly robust data can assure the central bank in sticking to the plan and altering its forward-guidance policy (and removing ‘patience’) in March, which would open the door to hike as soon as in June.
Additionally, the unemployment rate fell from 5.7 percent to 5.5 percent, which is considered to be an upper level of a 5.2% to 5.5% corridor, reflecting the natural level of unemployment for the U.S. economy, according to the Fed’s officials. However, the U-6 is much higher at 11 percent.
On the other hand, the steady gains in hiring have generally failed to translate into faster wage growth, which is the key indicator of future inflation observed by the Fed. Wages were up 2 percent from a year earlier, which indicates that some cyclical weakness persists in the labor market. The explanation of the sluggish wage growth may be the weak labor-force participation. This rate fell in February to 62.8 percent from 62.9 percent in January. It means that millions of potential workers remain detached from the job market.
It is also worth pointing out that the number of persons employed part time for economic reasons and persons marginally attached to the labor force was also little changed in February. It means that still a lot of people are shadow unemployed. However, these people also exert downward pressure on wages, according to the Fed. Thus, the sluggish wage growth indicates that the U.S. economy has not fully recovered yet.
The bottom line is that the February Job Report seems to be negative for the gold market, since the total non-farm employment rose more than expected. It may accelerate the Fed’s hike; however wage growth remains sluggish and the U.S. labor market is still far from full recovery (the labor force participation rate remains low, while the U-6 unemployment rate is far higher than the official unemployment rate). It means that there is no guarantee the Fed will hike by midyear. A lot of depends on whether we will see more upward pressure on wages.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview
