Disappointing May 2016 USA Job Report

Dear PGM Capital blog readers,

On Friday, June 3, 2016, the USA Bureau of Labor Statistics reported that the country’s economy only added 38,000 nonfarm payrolls jobs in May, well below the 160,000 gain anticipated by analysts. The increase was the smallest registered since early 2010, when the US economy was losing jobs.

On top of this, the change in total nonfarm payroll employment for March was revised down from +208,000 to +186,000, and the change for April was also revised down from +160,000 to +123,000.

Highlights of May USA Job report:

• The number of persons employed part time for economic reasons (also referred to as involuntary part-time workers) increased by 468,000 to 6.4 million in May.
• Health care added 46,000 jobs in May, with increases occurring in ambulatory health care services (+24,000), hospitals (+17,000), and nursing care facilities (+5,000). Over the year, health care employment has increased by 487,000.
• In May, mining employment continued to decline (-10,000). Since reaching a peak in September 2014, mining has lost 207,000 jobs. Support activities for mining accounted for three-fourths of the jobs lost during this period, including 6,000 in May
• In May, the civilian labor force participation rate decreased by 0.2 percentage point to 62.6 percent as can be seen from below chart.

• Below chart shows that labor force participation rate has declined by 0.4 percentage point over the past 2 months, offsetting gains in the first quarter of this year.

As can be seen from below chart, the dollar slumped versus major rivals on Friday, with the euro rising to its highest level versus the U.S. currency in three weeks after official U.S.

More negative news for the dollar followed when the Institute for Supply Management’s services index came in at 52.9% in May, down from 55.7% in April, driving the dollar even lower.

It was the US-Dollar worst weekly performance against both the euro and the yen since April 29, with the euro gaining 1.8% against the dollar while the buck shed 2% of its value relative to the yen.

PGM CAPITAL ANALYSIS AND COMMENTS:
As can be seen from below chart, since February of this year, the job creation capability of the USA Economy is showing a decreasing trend.

On top of this when we go under the hood of the job creation myth of the USA Economy we see that since 2007 the USA Economy has created 1.6 million low-paid bartender and waiters jobs, while at the other hand it has lost 1.5 high paid manufacturing jobs as can be seen from below chart.

It is also worth mentioning that, the number of Americans not in the labor force surged to a record 94.7 million, an increase of 664,000 in May.

Global Markets:
The weak US jobs data contaminated USA and European bourses, sending them firmly into the red by close, with the  The FTSE-100 as the only exception as can be seen here below:

• DOW-30: -0,18%
• AEX-25: -0,51%
• FTSE 100: +0.39%
• DAX-30: -1.07%
• CAC-40: -1.07%

The FED:
It has become increasingly clear that the rate hike in December was implemented just to save face for the Federal Reserve, and it is even more clear that the economic situation in the USA is far from bright and sunny, with the consequence that the disappointing May jobs report immediately clouded the possibility of a Fed rate hike in June or July.

Gold:
The weak jobs data helped boost gold prices and gold miner stocks for a number of reasons:

• The data led to a big drop in Treasury yields  which makes gold more attractive since it doesn’t offer a yield.
• Lower yields pushed down the value of the U.S. dollar relative to other currencies which helps lift the price of commodities that are priced in dollars; the lower the price of the dollar, the more dollars you need to buy the same amount of gold
• A slowdown in the U.S., which has been the bright spot in an uncertain global economy, makes a rate hike of the FED more uncertain and could make safe-haven assets, like gold, more attractive.

Based on this gold prices surged on Friday with US$ 34.00 an ounce (+2.81%) to close the week at US$ 1,243.80 an ounce as can be seen from below chart.

Based on the sharp bounce of the price of gold, gold miner stocks soared Friday, with the sector enjoying its best day in 7 1/2 years.

As can be seen from below chart, the “VanEck Vectors Gold Miners exchange-traded fund” (NYSE: GDX) shot up 11.2%, marking the best one-day percentage gain since November 21, 2008, in the midst of the Great Recession.

Until next time.

Yours sincerely,

Eric Panneflek