US jobs growth – looking behind the headlines

Both gold and US shares got smashed Friday night with the release of the US non farm payroll employment figures showing a strong 295K new jobs added and the unemployment rate dropping to 5.5%.  The market read this as evidence we will see the US Fed raise rates earlier than expected and hence a reason to get out of the over inflated sharemarket with the prospect of yield elsewhere and gold down as the cost to carry would increase and ‘everything is awesome’…

But again looking behind the headline and we saw a large contributor to the unemployment rate dropping was in fact more people dropping out of the labour force, with the participation rate now down to 62.8%, the worst in almost 40 years.  There are now 92.9m people in the US not in the workforce, 6.5m of them actively wanting a job.  Wage growth was also very weak at just 0.1%, in part because of a continuation of the trend of less full time jobs and more lower paying, less secure part time jobs.

Indeed if you look at the time since the rate was last down to 5.5%, May 2008, the US has seen its population grow by 16.8m people but has a deficit of 140K full time jobs created and 2.7m new part time jobs.  So in effect, not a single one of the expanded population got a full time job and only 14.3m got a part time job.  The graph below courtesy of ZeroHedge paints the picture…

So whilst the 295K/5.5% headline is encouraging, we need the context of full story before getting too bullish about the US recovery and its sustainability.  Remember that every 1% increase in rates in the US means more than $150b in interest they have to pay on their debt, when they are already printing money to pay the current burden. 

It is going to be a very tricky one for the US Fed to manage.  If they want people to believe the recovery story they need to raise rates.  Raise the rates and the whole house of cards could collapse.  The speculation in the meantime, makes for great buying prices for gold and silver.