Despite high expectations, the U.S. employment didn’t rise by a much higher pace in June than in the past few months: according to the latest U.S. employment report, which was published today, July 6th by the Bureau of Labor Statistics the number of non-farm employees rose by only 80,000. The main sectors that expanded during June were in Professional and business services; many other sectors declined during the month. The rate of unemployment remained unchanged at 8.2%. Gold and Silver prices are falling along with other commodities rates.
The chart below shows the revised figures of the number of non-farm employees added to the labor market during the past years (up to June 2012). Furthermore, the change in non-farm payroll was revised up for May from +69k to +77k. Keep in mind that the low growth could also be related to a seasonality effect (during June 2011 were also very low numbers of added jobs).
As I have calculated in the past, the number of non-farm payroll employment needed to join the labor market on an average monthly scale to keep up with the growth of the U.S. civilian labor force is at least 107k (see red line in the chart below). This means that the recent gain in employment during June didn’t even meet this number.
Due to the modest expansion in employment the rate of U.S. unemployment remained unchanged in June at 8.2%. The rate of unemployment is still at its lowest level in recent years. The current unemployment rate is nearly 1.6 percent points lower than its rate in November 2010.
Furthermore, the number of unemployed persons (12.7 million) was essentially unchanged during June
Following this news currently, the Euro to US dollar exchange rate is trading slightly up along with the GBP/USD; crude oil price is sharply falling along with U.S stock market indexes while gold price is rising.
Now let’s breakdown how this news might affect the direction of commodities prices, including the prices of gold and crude oil:
Gold Market
As I have already showed in the recent gold and silver prices monthly report, historically, as the non-farm payrolls didn’t expand by at least the population growth rate (roughly 107k), gold price tended to increase; this correlation was mostly due to the effect this news has have on the U.S dollar; furthermore in recent months a low expansion in employment was reviewed by bullion traders as raising the chances of the Federal Reserve intervening in the markets by running another stimulus plan (QE3). In the past, quantitative easing 1 and 2 may have contributed to the rise in bullion rates. I have also showed in the past the positive relation between U.S money base and precious metals rates.
The table below presents the correlation between the news of the U.S. non-farm payroll employment changes and the daily changes in gold and silver prices on the day of the U.S. labor report publication. The table shows the negative relation between the U.S employment and daily changes of precious metals.
Crude Oil Market
The ongoing low expansion of the non-farm employment is a negative sign for the slow recovery of the U.S. economy from the perspective of the U.S’s work force; thus this news may also signal an expected decline in U.S. demand for crude oil, and consequently may continue to pull down crude oil prices during today’s trading.
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