The U.S. economy added 173,000 jobs in August. What does it mean for the gold market?
The August jobs report was rather disappointing. Total nonfarm payroll employment increased by only 173,000, much below the expected 223,000 jobs and the July number. This was the worst monthly payroll number since March and the second lowest number in 19 months. What is important is that jobs gains occurred only in health care and social assistance, and in financial activities, while employment in manufacturing and mining declined. Thus, we have a “low-wage recovery”, since job gains occurred mainly in the lower-paid sectors, partially due to government meddling and Medicaid’s expansion in some states (government added 33,000 jobs in August versus July's 21,000).
On the other hand, the unemployment rate fell to 5.1 percent, the lowest level since early 2008. Undoubtedly, the true unemployment rate is higher, since the official rate does not count people marginally attached to the labor force, people with part-time jobs who want full-time jobs. There are also many discouraged workers or people forced to retire who are not included even in U-6. But the Fed cares about official statistics, which – except the August headline – are not so bad. The number of jobs created in the two prior months was revised up a total of 44,000, while average hourly earnings rose by 8 cents to $25.09, following a 6-cent gain in July. It means that they increased 0.3 percent monthly and 2.2 percent on an annual basis.
Therefore, although the headline number is disappointing, the overall report is good enough to permit a Fed rate hike in September. The U.S. economy continues to create a steady batch of new jobs, with an average of 212,000 jobs added monthly this year. The growth in average hourly earnings also could be the indication that the September hike is still on the table. Investors should also remember that the August data used to be underreported initially and then revised up later, which is another reason why the Fed could focus not on the weak headline, but on wage trends.
Summing up, the August job report was mixed, but good enough to permit an interest rate hike in September. The 173,000 jobs added are disappointing, however the August data are often underreported initially. Anyway, even with only 173,000 job gains there was “some” further improvement in the labor market, especially with regard to the decline in the unemployment rate and wage growth. Thus, the report is bad news for the gold market, because investors still anticipate a monetary tightening this year, which is likely to prevent any significant rebound in the price of gold. Indeed, gold prices declined after the U.S. labor report was released.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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