Gold price drops as U.S. economy creates 2.5 million jobs in May
Friday, the Bureau of Labor Statistics said 2.5 million jobs were created in May. The data significantly beat expectations; according to consensus forecasts, economists were expecting to see job losses of around 7.75 million.
New life is being breathed into the U.S. economy as states start to ease nearly two-month lockdown measures that were put in place to slow the spread of the COVID-19 pandemic.
“These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it,” the report said. “In May, employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade.”
Gold prices were already under pressure ahead of the employment numbers and have lost further ground in initial reaction. August gold futures last traded at $1,693.80, down nearly 2% on the day.
Not only did the U.S. economy create new jobs last month but the unemployment rate dropped more than expected. The report said that the unemployment rate fell to 13.3%, down from April’s reading of 14.7%. Economists were expecting to see a rise to 19.4%.
However, it’s not good news in the labor market. The report revised April’s jobless to 20.7 million, up from the initial estimate of 20.5 million job losses. March’s employment data was also revised down to 1.4 million, compared to initial job losses estimates of 881,000.
Wages also saw a significant drop, with average hourly earnings falling by 29 cents or 1% in May to $29.75. Consensus forecasts were expecting to see a 1% rise in earnings.
“The decreases in average hourly earnings largely reflect job gains among lower-paid workers; this change put downward pressure on the average hourly earnings estimates,” the report said.
For some economists, the latest employment data adds more support for a “V”-shaped recovery as it appears the losses since mid-March appear to be temporary.
Across the board, #markets embrace this #jobs report as confirming the hypothesis of better growth:
Entire yield curve is up, with the 2 year at 0.23% and the 10 year at 0.94%;
Futures point to a much stronger open for #stocks (up 1.5% for the S&P) and#VIX is solidly below 25 https://t.co/rA1SxSx2cV
— Mohamed A. El-Erian (@elerianm) June 5, 2020
Economists at CIBC noted that while the data has surprised on the upside, this is more a timing issue then the start of a new trend.
“With state economies only really starting to open up mid-month, it was expected that most of the job gains would have been picked up in the June survey period. As such, the surprise today is more a timing issue rather than a sign that the rebound in employment will be faster than previously envisioned,” the analysts said in a note Friday.
The economists warned that despite May’s employment data, the U.S. labor market will see a long road to recovery.
“While the gains in employment will look large by historical standards, the rate of increase will be gradual relative to the precipitous drop seen between March and May. Moreover, due to continuing restrictions on some industries to prevent the spread of COVID-19, and the weakening of demand caused by recent job losses, employment will remain depressed relative to pre-COVID counts even in 2021,” they said.