The Daily Market Report: Gold Tumbles on Better Than Expected Jobs Report

06-Mar (USAGOLD) — Gold dropped sharply in early New York trading following the release of February nonfarm payrolls data. The better than expected headlines number popped both yields and the dollar, weighing on the yellow metal.

The U.S. added 295k jobs in February, which was above expectations of +240k. The jobless rate fell from 5.7% to 5.5%, the lowest read since 2008.

Those headline numbers are solid, which dragged Fed rate hike expectations forward. The U.S. 10-year yield jumped to a new high for the year at 2.24% and the dollar dutifully followed.

However, the bigger than expected drop in the unemployment rate was once again partly attributable to another rise in the number of American’s not in the labor force, to the tune of 354k! That puts the total number not in the labor force at a record matching 98.9 million, leaving the labor force participation rate near its 37-year low of 62.7%.

Neil Irwin of the New York times summed it up succinctly: “[T]he unemployment rate fell mostly for not-so-good reasons in February. . .”

Additionally, average hourly earning only rose by a scant 0.1%, below market expectations of +0.2%. Stagnant wages remain a real problem when it comes to a true and robust recovery. Some are suggesting that wages remain soft because many of the new jobs being added are of the low quality, low paying variety.

The loss of higher paying energy related jobs may be factoring into this as well, but ZeroHedge thinks those losses are being grossly under-reported by the BLS:

. . . the BLS reported that only 1,900 jobs were lost in the entire oil and gas extraction space, which was a vast underestimation of what is taking place in reality, when compared to not only corporate layoff announcements, but what Challenger had reported was going on in the shale patch, when it calculated that some 21,300 jobs were lost in January in just the energy sector. — ZeroHedge

Despite some legitimate concerns with regard to the backing data, many seem to think the headline numbers are sufficient to trigger a Fed rate hike in June. Goldman Sachs thinks there will be a shift in guidance — dropping of the word “patience” — at the next FOMC meeting, and the rate hike will occur in June.

Goldman also however cut its Q1 GDP forecast to 2.4%, from 2.6%. They cite a smaller than expected contraction in the trade deficit, which resulted from big drops in Food & Beverage (-9.1%) and Automobile exports. On the import side of the equation, Industrial Supplies imports plunged 11.3%.

Expectations as to that first rate hike will continue to be influenced by the latest data. At this juncture however, the hawks seem to be optimistic that it will happen this year.

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