Another very disappointing U.S. employment report which was published today, July 8th by the Bureau of Labor Statistics regarding June 2011.
The labor force rose at a much slower pace than in the past few months, as the number of non-farm employees increased during June by only 18,000 compared with an increase of 54,000 during May, and 244,000 during April. The recent increase was mainly in the professional and business services, health care and mining sectors.
Thus the U.S. unemployment rate didn’t change much and increased by only 0.1 percent point during June, from 9.1% in May to 9.2% in June (as seen in the chart below).
Furthermore, the number of unemployed persons (14.1 million) didn’t change much during June.
As I have calculated in the past post, the average number of jobs to be created each month should reach at least 107,000 in order to keep with the annual growth rate of the U.S. civilian labor force. This means that these figures above don’t even cover the average natural growth rate of the labor force.
Despite the bad news, the Euro to US dollar exchange rate is currently traded down, even when considering the ECB rate increase from yesterday.
Now let’s breakdown how this news could affect the commodities markets:
Gold market
As analyzed in the July monthly report on gold and silver prices, historically, as the non-farm payrolls inclined the gold and silver prices declined; this correlation was mostly due to the effect this news had on the US dollar (i.e. for good news from labor report, usually strengthen the US dollar and consequently pulled gold and silver prices down); in this recent report, in which the news didn’t show an improvement in the US labor condition should push gold and silver prices up; on the other hand, yesterday’s ECB rate decision is likely to pull gold prices down. Therefore, these two opposing forces are likely to curb the recent rally of gold and silver prices.
Crude oil market
The U.S. economy didn’t show improvement in the labor force during May and June; this might reflect indirectly the changes in the demand for crude oil and natural gas in the industry market. Historically there was little correlation between the new about the labor report and the daily changes in crude oil prices. There might be some long term effects, i.e. as the US economy weakens, the US demand for oil might also fall, but again there is little evidence to support any short term effects; this report could serve more as an indicator of the progress of the US economy’s and potential growth in crude oil demand.
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