The U.S. economy added 142,000 jobs in September. What does it mean for the U.S. economy and the gold market?
The September jobs report was a disaster. Total nonfarm payroll employment increased by only 142,000, much below the expected 203,000 jobs and the August number. Job gains occurred mainly in education and health care, leisure and hospitality and professional and business services, while employment in manufacturing and mining declined again.
Moreover, there were downward revisions for the last two months, so total employment gains in July and August were 59,000 less than previously reported. This year, job growth has thus averaged 198,000 per month, significantly less that an average monthly gain of 260,000 in 2014.
On top of that, the labor market shrank, as the civilian labor-force participation rate decreased from 62.6 percent to 62.4 percent, the lowest level since October 1977. This means that 350,000 people dropped out of the labor force. Surely, some of these people could leave the labor force voluntarily as retirees, because they preferred leisure to work. However, the declines are mainly found in the 16-55 age group, not among people over 65 years old.
To make matters worse, with so many people out of the labor force, one would expect that an increased scarcity of workers would push wages up. But that is not happening. Actually, the average hourly wage paid to American workers fell a penny in September.
The only positive thing in the report was an unchanged official employment rate at 5.1 percent and a decline in the U6 rate from 10.3 percent to 10 percent.
The disappointing September jobs numbers prove that the U.S. economy is still in a fragile state, and that it is not decoupling from the rest of world. The report also shows the importance of manufacturing – consumers alone cannot drive economic growth. Now it is almost certain that the Fed will not raise interest rates in October. And there will have to be a huge rebound in next reports to hike in December. The odds for hiking in October fell to 6.90 percent, in December to 28.50 percent, in January to 38.80 percent and in March to 50.60 percent.
The bottom line is that the September job report was a disaster, which should prompt the Fed to delay the long-expected increase in interest rates. This is why the U.S. dollar fell after the data was published, and gold rallied. The shiny metal gained more than 2 percent on Friday, the biggest one-day rise in nearly nine months. Given the fact that gold is a bet against the U.S., the undermined faith in the biggest economy in the world should support the price of the yellow metal.