The U.S. employment rose again by a higher than expected pace – based on the ADP estimate, the non-farm payroll increased by 195k during May: Based on the recent U.S. employment report, which was published today, July 5th by the Bureau of Labor Statistics the number of non-farm employees rose by 195,000. The main sectors that grew during June were in leisure and hospitality, professional and business services, retail trade, health care, and financial activities. The rate of unemployment remained at 7.6%. Gold and silver prices are currently plummeting while other commodities prices and the major stock markets are rising.
The chart below presents the revised figures of the number of non-farm employees grew in the labor market in recent years (up to June 2013). The non-farm payroll was revised up for April from +149k to +199k; For May it was revised from +175k to +195k. The combined added jobs in those months were 394k – 70k more jobs than previously estimated. The revised figures for April and May suggest the employment situation in the U.S has improved.
As I have examined in the past, the minimum number of non-farm payroll employment needed to maintain the rate of unemployment unchanged (to compensate with the growth of the U.S. civilian work force) is more than 100k. So the recent increase in number of jobs was higher than this threshold.
The rate of U.S. unemployment remained unchanged in June at 7.6%. The rate of unemployment is at its lowest since mid-2008 but hasn’t changed much since November 2012. The current unemployment rate is 0.6 percent points lower than its rate in June 2012.
Moreover, the number of unemployed persons (11.8 million) was also almost unchanged in June compared to last month.
Following this news, currently, the Euro/USD exchange rate is sliding; crude oil price is increasing; the U.S stock market indexes are also slightly rising; gold and silver prices are plummeting.
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 stated in the recent gold and silver monthly outlook, historically, if the non-farm payrolls rise by more than the population growth rate (roughly 107k), gold and silver prices tended to decline; this correlation was mostly due to the effect this news has had on the speculation of the Fed may taper its QE3 program as the U.S economy is slowly recovering.
The table below shows the correlation between the news of the U.S. non-farm payroll employment shifts and the daily changes in gold and silver prices on the day of the U.S. labor report publication. The table below presents the negative correlations between the U.S employment and daily changes of bullion prices.
Crude Oil Market
The recent rally in the non-farm employment is higher than many had expected; moreover, the employment grew by well above the 100k mark, which is raises the changes of the Fed tapering its asset purchase program in the coming months. This is among the reasons for the recent drop in gold and silver prices.
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