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Drop in Jobless Rate Sews Optimism, But...by Peter A. Grant
Oct 05, AM 
Call it the curse of being an economist, but what others happily accept as good news, I am compelled to scratch at the surface searching for answers. This is particularly true when the anecdotal evidence I see in the real world doesn't jibe with the data While I hope for confirmation of good news — particularly with respect to jobs — frequently over the past several years, the outcome has been just the opposite.
Today's September nonfarm payrolls report was a mixed bag. The headline 114,000 new jobs added was still a very weak number, a far cry from what is really needed. Back-month revisions were more encouraging, but even the 142,000 jobs in August (revised up from 96,000 initially) isn't even close to being reflective of a true labor market recovery. What was encouraging — at least from a headline perspective — was the 0.3% drop in the unemployment rate to 7.8%, the lowest print since January 2009. The household survey, from which the jobless rate is derived, jumped a massive 873,000 jobs. Great news right? Not so fast... It turns out that 582,000 of those new jobs in the household survey (or 2/3rds) were part-time positions, in a category the BLS describes as "persons employed part time for economic reasons". They're also referred to as "involuntary part-time workers," as they would prefer to be employed full-time. Arguably part-time work is better than no work, but the data aren't nearly as rosy as some seem to want to believe: The labor force participation rate remains weak at just 63.3%. These recent levels were last seen in the early-1980s. The participation rate for men specifically is 70%, just off the all-time low of 69.6% set earlier in the year. The U6 number remains at 14.7% un/under-employment, as that series counts "involuntary part-time workers" as underemployed. I'm afraid we'll find that most of the 582,000 part-time jobs gained in September are low paying — and likely fleeting — retail positions. They might prove sticky through the Christmas shopping season, but then again, they might not. Despite the recent negative revisions to GDP, down to 1.3% in Q2 (ouch!) and expectations now running around 1.4% for Q3, consumer sentiment actually rose over the last several months. This resulted in modest gains in retail sales in July and August of 0.6% and 0.9%, respectively. Consumers were spending, but they were primarily utilizing credit. August consumer credit is expected to come out at +$8bln later today, versus -$3.3bln in July, although the latter is likely to be revised higher. Consumption is also coming at the expense savings. The personal savings rate dropped to 3.7% in August, down nearly 16% from the recent high of 4.4% in June. This is off significantly from the highs above 6% in the worst days of the financial crisis. Gold retreated on this news. Maybe it was just the knee-jerk reaction that has been engrained in recent years: Good data lessens the likelihood of further Fed accommodations. However, the Fed made it very clear in their recent FOMC statement that good news is not going to incite them to back-off on their über-accommodative policy stance. In fact, if one where to interpret today's jobs data as truly optimistic, I would argue it is then a significant inflationary risk; more people working, more people spending. Instead, I think we remain in the same old economic malaise we were in last month, and last year for that matter. This will keep interest rates at negative levels in real terms and precipitate further currency debasement, as the Fed continues its battle against deflationary pressures. But however this all unfolds, gold remains a portfolio stalwart, providing a hedge against all of the "-ations": Inflation. Deflation. Staglation. Hyper-inflation. Whatever comes your way, your gold holdings will serve you well. Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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