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Why should I care about US labor market conditions?

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Why jobs data matter

The jobs report serves as an important barometer of economic health and growth across all sectors of the economy. A declining unemployment rate or a rising payroll trend both indicate increased business activity.

More jobs also mean more money in the hands of consumers and thus an increase in overall consumer spending. The Fed also assesses jobs data to determine whether the economy is strong enough to withstand higher interest rates.

In this part of our series on gold, we’ll explore the major US labor market indicators you should keep an eye on. With these in mind, you can form a view about the overall job market in the United States.

On March 6, the U.S. Bureau of Labor Statistics (or BLS) released its employment situation report for the month of February. Figures reported were either in line with or better than expectations.

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Strong employment rates

The unemployment rate was at a new six-year low in February when it came in at 5.5% compared to 5.7% for January. This is also lower than the expected rate of 5.6%. This is the lowest recorded value since June 2008. It peaked at 10% during the financial crisis.

Non-farm payroll above expectations

The non-farm payroll (or NFP) shows the number of jobs added or lost each month. The NFP employment figure came in well above the consensus range of 200,000 to 252,000. According to the BLS report, total non-farm payroll employment increased by 295,000 in February compared to 239,000 in January.

The above numbers show strong labor market prospects in the United States.

A strong labor market is positive for the economy since it translates into consumer spending, which forms about two-thirds of the US economy. But it’s usually negative for gold prices and ultimately gold-backed ETFs such as the SPDR Gold Trust (GLD).

Other affected investments include Goldcorp (GG), Barrick Gold (ABX), Agnico-Eagle Mines (AEM), and Yamana Gold (AUY) as well as ETFs that invest in these stocks such as the VanEck Vectors Gold Miners Index (GDX). AEM and AUY make up 8.8% of GDX’s holdings.

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