What the jobs report DIDN’T tell you last week

Big Picture Economy Goud Inflation/Deflation Markets Secular Investor


Ever since the gold report was published, the gold price moved up. This caught several investors by surprise, as some of them even continued to dump gold, scared by what appeared to be a good jobs report.

‘Appeared to be’, because?

Yes, 227,000 new jobs were created, and we can’t deny that’s a positive evolution. However, the increased job number is also the only positive thing in the jobs report, and there are two other issues that haven’t really been highlighted.

Two issues that could, and probably will, have an impact on the interest rate decisions later this year.

First of all, the unemployment rate in the USA actually increased from 4.7% to 4.8%, despite the job growth.

How is that possible?

Simply put, due to the way the Bureau of Labour Statistics is gathering its data, almost 700,000 people have been ‘removed’ from the civilian population. The total size of the civilian population is rebalanced on a yearly basis, in January.

Inflation Job numbers

Source: Bureau of Labor Statistics

The smaller size of the civilian population caused the labor force participation rate to increase by 0.2%, and this by itself caused the unemployment rate to increase as well, despite the job creation number.

And as the unemployment rate is one of the key factors the Federal Reserve is looking at to determine whether or not a rate hike is appropriate, this small increase could have an impact on the decision making process. And keep in mind this is the second consecutive increase in the unemployment rate as the December unemployment rate also came in higher than the unemployment rate in November (and this did not include any population rebalancing exercise).

But perhaps even more important is the extremely disappointing update on the average hourly earnings (‘AHE’). The AHE increase fell to just 0.1% in January on a month/month comparison, but the real catch is in the details.

Exactly because the 0.1% increase is focusing on a monthly update, the revision of the wage increase in December is actually telling you something more serious is going on. The December wages have been revised down by 0.2%, so if that would NOT have happened, the average hourly wage would have DECREASED in January.

US Inflation Rate

Source: tradingeconomics.com

And that’s a horrible conclusion, considering the official inflation estimates are currently hovering at around 2.3-2.5% by the end of 2017, it’s pretty easy to see and understand the inflation will eat a lot of the wealth of the lower income class and middle class people away. Indeed, let’s have a look at the expected five year forward inflation rate, as expected by the Federal Reserve:

Inflation 5 year

Source: St Louis Fed

After all, the salaries are remaining relatively stable, whilst the inflation rate is eating away 2% of the families’ purchasing power. You don’t have to be a genius to see this could go terribly wrong as a declining purchasing power will reduce the so-called  ‘disposable income’, causing the demand for non-essential goods to increase. We aren’t just ‘inventing’ this. Just have a look at the next chart which shows you the consumer confidence level in the USA.

Inflation Consumer Confidence

Source: tradingeconomics.com

Indeed, despite the job growth in January, the consumer confidence level was decreasing and this should tell you the common man in the street doesn’t feel too confident about the ‘job growth’ numbers and the economic prospects for the middle class man.

The numbers don’t lie, and even though the Bureau of Labour Statistics was proud to announce yet another increase in the job numbers, the data that wasn’t shouted from the rooftops is far more important. The US Consumer Confidence is decreasing, and the wages are stalling. This means inflation is eating away the people’s purchase power ànd savings.

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  1. BLS
  2. Bureau Labour Statistics
  3. consumer confidence
  4. inflation
  5. jobs report