The headline unemployment rate edged up by 0.1% from April to 5.5% in May. Economists were expecting the rate to remain unchanged at 5.4%. The slight decline was probably because new college graduates entered the labor force.
Wage growth was quite dismal for the last few months. It was often referred to as the “missing piece” of the US labor markets. However, it has started picking up. Average hourly earnings for May increased by $0.08 to $24.96. The YoY (year-over-year) gain was 2.3%. This is the largest gain since August 2013. Higher wages usually contribute to more consumer spending—it accounts for close to two-thirds of the US economy. Wage growth translates into economic growth. It’s a significant part of the overall equation.
Positive growth prospects
Wage growth should rise in the coming months given the highest job adds happening in high-paying sectors, as we saw in the last part of this series. Some US states have also increased minimum wages. This should also support wage growth.
Wage growth and gold prices
The strong labor market report strengthened the hopes that the US economy is back on track after a sluggish first quarter. Strong wage growth along with other positive labor market indicators is usually negative for gold prices (GLD) and stocks like AngloGold Ashanti (AU), Kinross Gold (KGC), Eldorado Gold (EGO), Yamana Gold (AUY), Newmont Mining (NEM), and New Gold (NGD).
It’s also negative for ETFs investing in these stocks like the VanEck Vectors Gold Miners ETF (GDX). Eldorado Gold, Yamana Gold, and Newmont Mining account for 4.1%, 4.2%, and 5.5%, respectively, of GDX’s total holdings.
In the next part of this series, we’ll look at the strength of the US dollar. It directly impacts gold prices.