Good news for the gold investors on Friday as the Department of Labor Statistics released the long-awaited jobs report. We won’t bore you with re-hashing everything in there, but the main point you should remember is pretty obvious, the US economy was able to create just 38,000 jobs which is definitely much less than the 160,000 jobs the analysts were expecting.
Despite this abysmal result, the unemployment rate fell by 0.3% to just 4.7%. That does sound very encouraging but indeed, the unemployment rate didn’t fall because so many new jobs were created, no, the unemployment rate fell because hundreds of thousands of Americans who were previously available for the labor market have now left the labor force.
Source: DLS Data.
The US mainstream media has rallied its troops to offer explanations for the huge miss. CNBC said we should actually be very happy with the low job growth as it means the productivity of the existing labor market participants has increased, whilst CNN claims the strike at Verizon has had a negative impact on the total growth rate as ’36,000 Verizon employees didn’t report to work’. Sure, that’s a very valid statement but even when you’re trying to sugarcoat things, you should make sure the math works out. Even if you’d add all of the 36,000 Verizon employees to the equation, the total job creation would be just 74,000 which still is more than 50% lower than the average expectations.
On top of that, the Labor department reduced the job growth numbers of the two previous months and slashed the job growth number in March and April by an additional 59,000 jobs.
Does this surprise us? Not at all. We wrote an article last month wherein we already explicitly warned the DLS seems to be overestimating the job growth numbers at the time of publication, but subsequently has to backtrack on its words and confess the job growth rate is much lower. We literally wrote:
‘If both February and March had to be revised (in a negative way), it’s not impossible the weaker-than-expected April report could be subject to another negative revision.’
That has now indeed happened, and this increases the pressure on the Federal Reserve to do nothing at all. It’s absolutely unthinkable the Fed will increase the benchmark interest rates at its June meeting, and this is now also being reflected in the futures market.
Source: CME Group
Last week we showed you how the market was indicating there was a 32% chance there would be no rate hike before September, and the odds have now changed completely, as there futures market is indicating there’s a 52% chance nothing will happen, whilst the odds there will be just one rate hike by February next year have increased from 55% to a stunning 76%.
Source: CME Group
The sharp reaction in the gold price (up $30/oz) shows how fast the market can switch between a bullish and bearish point of view. The continuous hints from Janet Yellen about potential rate hikes did scare the market which resulted on more pressure on the gold price. Now a new rate hike seems to become very unlikely, the appetite for owning gold is returning.
The US economy is definitely getting worse by the month, and no, you cannot blame the strike at Verizon for this.
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