The US’s employment report was published today, April 1st by the Bureau of Labor Statistics published about the March 2011. According to the recent report, the number of non-farm employees increased by 216,000. The rise was mainly in the service-providing industries mining, and manufacturing.
The U.S. unemployment rate continued its moderate decline and dropped by 0.1 percent point during March, compared to February from 8.9% to 8.8%; during March 2010 the unemployment rate was a decline of 9.7% (as seen in the chart below).
The number of unemployed didn’t change much during March 2010 as it reached 13.5 million.
Let’s examine if this rise in number of non-farm employees was above, below or at the trend, i.e. given the estimated number of jobs needed to be created each month just to keep the current unemployment rate as it is, did this recent increase was higher or lower then that number:
The annual US population growth rate is 0.97%, the labor participation rate (as of 2009) is 65%, and the US population in working ages of 16-65 is 205 million people; given these numbers, the average jobs needed to be added each this year just to preserve the current unemployment rate, should be 1.94 million (205*0.97%*65%) , and on monthly scale an average 107,000 jobs. Since the labor report superseded this figure, then the US economy did better in order to decrease its unemployment rate.
Let’s breakdown how this recent news could affect the commodities markets in particular the demand for crude oil:
Crude oil market
The U.S. economy didn’t show much improvement, from labor and employment perspective, during the last couple of months. I.e. U.S. economy didn’t improve much during February-March 2011 in creating jobs; this might suggest that the demand for energy products such as crude oil and natural gas didn’t rise beyond seasonality adjustments in the industry market.
One of the industries that demand for energy commodities such as oil, coal and natural gas, is the manufacturing industry.
In the recent report, the manufacturing industry reported a rise of 17,000 in employment and a 243,000 rise since Dec 2009 up to March 2011.
Therefore, there are some signs of improvement in the manufacturing industry that could explain part of the rise in demand for energy commodities in the recent weeks in the US.
One reason the demand for gold as an investment was driven up in the past few years was due to the drop in trust of many investors in US dollar related investments such as Government Treasury Bonds (the low interest rates obviously didn’t make these investments any more appealing). This is probably one of the reasons for the ongoing surge in gold and silver prices.
If the US economy will show a more persuasive improvement, then this might decrease hot and speculative money entering the commodities markets to hedge against the weakening of US dollar base investments.
For further reading (in this site):
- Is gold a safe haven investment compare to S&P500
- Examining the Fed’s policy and its potential effect on oil prices