157,000. Is that few or many? And what does it mean for the gold market?

Slowdown without Slowdown

U.S. nonfarm payrolls slow downed in July. The economy added only 157,000 jobs last month, while MarketWatch had expected 195,000. The gains were widespread – however, job creation was the strongest in professional and business services (+51,000), leisure and hospitability (+40,000), and manufacturing (+37,000). Interestingly, government, financial activities, mining, utilities, and transportation and warehousing combined cut about 26,000 jobs.

The July increase in total payrolls followed a rise of 248,000 in June (after an upward revision). However, the weak headline number was balanced by revisions for May and June. With those, employment gains in these two months combined were 59,000 more than previously reported. In consequence, after revisions, job gains have averaged 224,000 per month over the last three months, still significantly above the level needed for a gradual tightening of the labor market. And, although the pace of job creations declined somewhat in July, it has remained positive, and generally in an upward trend since the fall of 2017, as the chart below shows.

Chart 1: U.S. unemployment rate (red line, left axis, U-3, in %) and total nonfarm payrolls percent change from year ago (green line, right axis, % change from year ago) from July 2013 to July 2018.

Moreover, the weak headline was mainly caused by cuts in jobs in the government, which we actually like, as more people may work now for the private sector (however, the cuts probably stem from the reduction in education during the summer). Let’s take a look at the chart below, which paints total U.S. nonfarm private payrolls. As you can see, the monthly gains have been solid recently. And they actually accelerated in July! Hence, the pace of employment gains remains healthy, which may be disappointing for some gold bulls.

Chart 2: Total U.S. nonfarm private payrolls (monthly change from year ago) from July 2013 to July 2018.