Under the hood of the USA March 2016 Jobs Report

Dear PGM Capital blog readers,

On Friday, April 1, 2016, the USA Bureau of Labor Statistics reported that the country’s economy added 215,000 nonfarm payrolls in March, beating market expectations. The private sector hired 195,000 workers.

But wages grew a mere 2.3% compared to a year ago. It’s especially disappointing because the economy has added millions of jobs in the last two years. When job growth increases, wages tend to follow with it.

But cursory look at the job additions in the month reveals that nearly two-third of all jobs, and the three top categories of all job additions, were once again all minimum wages jobs.

As can be seen from below chart, just these three top sectors:

• Education and Health: 51K
• Retail Trade: 48K
• Leisure and Hospitality: 40K

Accounted for 65% of all job gains.

This “growth” of minimum wage labor took place while some of the highest paying jobs, including mining and logging, manufacturing and transportation and warehousing all posted declines in March.

Of 84 major industries, ambulatory health care services saw the biggest gain of the month, with over 27,000 additions. This broad sector pays its workers well, with an average hourly wage of nearly US$31.00 an hour.

On the other-hand, the above mention additions of high-paid job, were nearly offset by bars and restaurants jobs, (+24,800), which pay an average of just US$13.17 per hour.

Bars and restaurants fall into the lowest pay group.

PGM CAPITAL ANALYSIS AND COMMENTS:
The U.S. economy is in a long period of stagnation, marked by slow employment growth. Unfortunately, some of the historical measures used to gauge the health of the labor market are no longer reliable.

While according with the USA Bureau of Labor Statistics (BLA) the country’s economy continues to add jobs, analyzing these data further shows more middle-earning workers were pushed out of the labor market.

As can be seen from below chart, only 11% of jobs that were created in the month of March, went to the industries that pay a middle-class wage and the majority of hires (52%) went to the lowest-paying of workplaces.

According to the National Employment Law Project, the employment landscape in the USA has changed significantly since the financial crisis.

Today, lower-wage industries employ 1.85 million more workers than at the start of the recession. By contrast, there are 958,000 fewer jobs in mid-wage industries and 976,000 fewer positions in higher-wage industries compared with pre-recession levels.

So although the USA has recouped most of the job-loss that occurred, there has been a troubling shift toward the lower-paying end of the income scale.

This illustrates the main problem with the BLS numbers: They focus only on the quantity of jobs created and give no thought to the quality of those positions – a crucial distinction.

While many analysts declared the April’s jobs report a sign of economic strength, below chart clearly shows that the low quality side of the income scale grew larger.

Therefore, we believe the new jobs that were added actually represented a continued drag on the economy.

Although this investors bid up US stocks sending them to the highest level of this year, while gold took a dive today, which can be seen as a correction in the prolonged bull market for Gold that has re-ignited in January of this year.

As can be seen from below chart, in which we compare the performance of Gold (red line) versus the one of the DOW-30 Index (blue line), Gold has outperformed the DOW-30 YTD broadly.

Beside this it worth mentioning that Gold in Q1-2016, has experienced its biggest quarterly rise in 30 years.

Until next time.

Yours sincerely,

Eric Panneflek