A lot of interesting data was released at the end of the past week. What do these new pieces of information tell us about the U.S. economy and how can they affect the gold market?

Let’s start with the March report on personal income and outlays. U.S. consumer spending rose in March by 0.4 percent after rising 0.2 percent in February, which can indicate that the economy is rebounding. On the other hand, inflation undershot the Fed's target for the 35th consecutive month, with inflation (PCE index) rising 0.2 percent in March and core inflation climbing just 1.3 percent over the past year. What is important is that personal income practically did not change in March. It means that spending rose faster than income (the U.S. savings rate fell for the first time in four months from 5.7 percent to 5.3 percent), which puts into question the sustainability of the recovery. Without steady wage growth, we would not see strong and stable consumer spending, especially that the consumer confidence index dropped to 95.2 in April from a reading of 101.4 in March.

It is also worth noticing that there was a big drop in interest payments and dividends, which indicates some problems among corporations. Some analysts point out the rise in bankruptcies across the country. That can be due to low energy prices, however, the debt burden and a jump in employment compensation costs also hurts corporate earnings. According to the Bureau of Labor Statistics, compensation costs were up 0.7 percent for civilian workers from December 2014 to March 2015, while over the year, they rose 2.6 percent. This rise is a good thing for the employees, but it dampens motivation for hiring and expanding investments, especially that U.S. worker productivity is very weak (as a reminder, productivity declined at an annual rate of 2.2 percent in the fourth quarter). Thus, rising employment costs with declining productivity are not a good environment for hiring and doing business. Indeed, the employment component of the Institute for Supply Management Index dropped 1.7 points to 48.3 percent in April, the lowest level since September 2009. The weak reading in employment is a big point of concern going into the April jobs report, which is going to be published on Friday.

To sum up, there is some positive news, which can indicate a partial rebound of the U.S. economy, however, it is definitely too early to trumpet the recovery and label the recent weakness as only “transitory”. As there are mixed opinions about the condition of the U.S. economy, gold should trade sideways. The crucial piece of data for the gold market will be Friday’s report on April non-farm payrolls.

Thank you.

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

Gold News Monitor
Gold Trading Alerts
Gold Market Overview