The growth in U.S. employment didn’t meet expectations and only slightly expanded during May: according to the latest U.S. employment report, which was published today, June 1stby the Bureau of Labor Statistics the number of non-farm employees increased by only 69,000. The main sectors that expanded during May were in transportation and warehousing, wholesale trade and health care but declined in construction. The rate of unemployment remained virtually unchanged at 8.2%. Gold and Silver prices are rising on renewed speculation that QE3 is right around the corner.
The chart below presents the revised figures of the number of non-farm employees added to the labor market during the past few years (up to May 2012). The change in number of non-farm employment was the lowest since June 2011. Furthermore, the change in non-farm payroll was revised down for April from +115k to +77k. Keep in mind that the low growth could also be related to a seasonality effect (during May and 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 107,000 (see red line in the chart below). This means that the recent gain in employment during May didn’t even reach this number. This is a sharp drop from the high numbers that were recorded between December 2011 and February 2012.
Due to the modest growth in employment the rate of U.S. unemployment edged up from 8.1% in April to 8.2% in May. 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 (12.5 million) slightly declined during April.
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:
As I have already reviewed in the previous gold and silver prices monthly report, historically, as the non-farm payrolls didn’t meet expectations gold price tended to rise; this correlation was mostly due to the effect this news has had on the U.S dollar; furthermore in recent months a low growth in employment was interpreted by bullion traders as raising the chances of the Federal Reserve intervening in the markets by issuing another stimulus plan (QE3). In the past, quantitative easing 1 and 2 may have contributed to the rally 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 shows 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.
Crude Oil Market
The low growth in the non-farm employment is a clear negative sign for the recovery of the U.S. economy in regards to its work force; thus this news may also reflect an expected decline in U.S. demand for crude oil, and consequently may continue to adversely affect crude oil prices during today’s trading.
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