The Bureau of Labor Statistics published the U.S. employment report last week on Friday, March 4th, for the month of February 2011.
There is an ongoing rise in job gains, however in a slower rate than reported during the previous month.
According to the report, the U.S. unemployment rate fell by 0.1 percent point during February, from 9.0% to 8.9%; as a comparison during January there was a decline of 0.4% in rate of unemployment.
The number of unemployed has very moderately declined to 13.7 million. Further, the labor force was about unchanged over the month of February. Non-farm payroll employment has risen by only 192,000 in February.
One of the major groups unemployed are people who are unemployed for long period of time (for more than 27 weeks), and are currently 6 million, and account for 43.9% of total unemployed.
In total, there are 6.4 million people who currently want a job, 5.2% higher than same time last year but 3.5% lower than January 2011; 2.7 million persons were marginally attached to the labor force, compare to 2.5 during February 2010 and 2.8 million in January 2011.
Let’s breakdown how this recent news could affect the commodities markets in particular the demand for crude oil:
Crude oil market
As the U.S. economy will progress, commodities investors will have to keep close tabs on its improvement and consider when, and if, it will be a good idea to invest in the U.S. economy.
The recent rally in crude oil price is mostly related to the news pouring from the Middle East, mainly from Libya. Thus it’s hard to break down the reactions of traders to the news about the US economy, let alone how the labor report will have an effect passed its day of the publication. This doesn’t mean, however that we can’t speculate…For that end, let’s examine the demand side of the US for energy products:
If I would to guess, this recent US labor report, which basically didn’t show much of an improvement, might suggest that the U.S. economy didn’t progress much during the last month in creating jobs, and this might suggest that the demand for energy products such as crude oil and natural gas didn’t rise beyond seasonality adjustments.
One of the major industries that have a demand for materials and in particular energy products such as oil, coal and natural gas, is the manufacturing industry.
In the last report, the manufacturing industry reported of 11.6 million employees (seasonally adjusted), nearly no improvement from January 2011 and 1.6% increase compare to February 2010.
Therefore, one could infer that the US demand for materials such as oil and natural gas didn’t rise due to lack of improvement in US economy in the manufacturing industry. Consequentially, I would speculate that this labor report won’t pressure a rise in crude oil price.
In any case, it’s important to remember that this is a labor report that only depicts a moment in time and thus should be taken as such.
The demand for gold was driven primarily by the decline 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).
If the U.S. economy will progress and show improvement, it could have a positive effect on the U.S. dollar: people might start to regain their trust in the U.S. economy and consequently return to invest in it, e.g. in the U.S. stock market.
For now, however, since the recent labor report didn’t show much of an improvement, it might have adversely effect the US dollar and keep on pressuring gold and silver prices to rise.
For further reading (in this site):
- U.S Labor report showing decline in unemployment
- Is gold a safe haven investment compare to S&P500
- Examining the Fed’s policy and its potential effect on oil prices