U.S. Payrolls Growth Expected To Top 200,000 Seventh Straight Month, Could Pressure Gold
New York (Sept 2) U.S. nonfarm payrolls are expected to have grown by more than 200,000 for the seventh straight month in August, economists say.
On balance, that presumably won’t be doing gold any favors, since it points to a stronger economy and thus potential for the U.S. Federal Open Market Committee to start hiking interest rates down the road. Still, one observer said prices should find some kind of floor anyway on ideas the Fed likely will remain cautious about pulling the trigger, unless the data should suddenly improve far beyond expectations.
The Labor Department is scheduled to release perhaps the world’s most widely followed economic report Friday at 8:30 a.m. EDT. Consensus estimates compiled by news organizations call for 223,000 to 226,000 nonfarm jobs to have been created in the U.S. last month after a rise of 209,000 in July.
Ahead of the Labor Department report, ADP is scheduled release its monthly report on private-sector jobs growth at 8:15 a.m. EDT on Thursday. Consensus forecasts are for this to show around 220,000 to 223,000 new private-sector jobs.
The U.S. payrolls report on Friday will “most likely confirm what we already know,” says Brown Brothers Harriman, in reference to an improving economy. And, if it does not, “it will likely be shrugged off as a fluke,” the firm added.
“There is no reason not to look for the 200-plus monthly increases in non-farm payrolls to extend the streak to seven consecutive months,” BBH said. “Nearly all the inputs that have been reported that economists use to shape their forecasts improved….The acceleration of improvement can be seen in the averages. The more recent averages are above the long-term term averages. The three-month average is 245k. The six-month average is at 244k. The 12-month average is at 214k, and the 24-month average stands at 203k.”
In recent weeks, jobless claims have tended to be under 300,000, pointed out Jeffrey Rosen, chief economist at Briefing.com, who looks for a 235,000 payrolls figure. If claims are in fact this low, “I would expect to see really strong payrolls growth,” Rosen said.
“The question is – are the initial claims levels accurate?” he said. Some might feel there are some bad biases built into the seasonal adjustments for the weekly claims data, meaning actual jobless claims might be higher than the reported figures, he continued. “If that’s the case, payrolls growth would be more likely to be between 200,000 to 225,000 than between 250,000 to 300,000, which are what the current initial claims level suggests.”
But either way, he continued, payrolls should rise by at least another 200,000.
“I don’t see anything changing on that. The economy is moving ahead,” Rosen said. “The claims numbers are telling us, even if they are biased, that labor-market conditions are relatively strong and would support payrolls growth north of 200,000.”
With the expectations for more jobs, consensus forecasts call for the unemployment rate to come down slightly to 6.1% from 6.2% in July.
Rosen, however, forecast an uptick in the jobless rate despite continued jobs growth. “There is a potential uptick in the unemployment rate as more people re-enter the labor market just because of improved labor-market conditions,” he said. This also caused the unemployment rate to rise in July despite the sixth straight monthly payrolls gain in excess of 200,000, he pointed out.
Strong Payrolls Number Could Hurt Gold
The expectation of a strong U.S. jobs report is probably one of the factors that has undercut gold so far this week, said Frank Lesh, broker and futures analyst at FuturePath Trading.
“If we get the number and it’s as expected, I think it will continue to pressure gold,” he said. “If we continue to see strong employment data, that is going to lead people to believe the Fed is closer to tightening rates sooner rather than later.”
Still, if strong data comes in around expectations, gold could remain largely range-bound, with the Fed unlikely to change its rhetoric yet, said Bart Melek, head of commodities strategy with TD Securities.
“While Friday’s U.S. payrolls will show another 200k-plus print, the Fed’s angst will still be in
place unless there is a significant beat,” he said. “So for now, gold will likely again trade in a tight range, but a bit lower than in recent weeks.”
Only a material “beat” of expectations is likely to change market expectations of future Fed monetary policy, he said. “So, a print above 275k could drive gold down to $1,250-40/oz,” he added.