Source: Golden Ten Data
US employment growth is expected to remain strong! Powell has repeatedly downplayed hawkish tendencies, but is it difficult for the price of gold to gain momentum?
At 20:30 Beijing time on Friday, the US will release the April non-farm payrolls report. Economists expect the employment report to show that strong employment growth continues, while wage pressure continues to ease.
The median of a Bloomberg survey predicts that the number of new non-farm payrolls will be recorded at 240,000 after the April seasonal adjustment. The average hourly wage will increase by 4% year over year, which will be the slowest growth rate in nearly three years. The unemployment rate is expected to be 3.8%.
Strong employment growth, combined with slowing wage growth, will support the Federal Reserve's wait-and-see approach to interest rates. Officials are considering whether it is still appropriate to cut interest rates in 2024 after higher than expected inflation data in recent months.
Citibank economists Veronica Clark and Andrew Hollenhorst wrote in an April 30 report: “If the number of new non-farm payrolls once again exceeds expectations, this will further reinforce the statement that the Fed has cut interest rates little or nothing. However, Fed officials have been downplaying hawkish reactions to strong employment data. If the employment data unexpectedly falls short of expectations, it will cause the market to quickly absorb more expectations that the Fed will cut interest rates.”
Here are the key parts of the report:
Number of new non-farm payrolls
Although economists generally expect April's non-farm payrolls data to slow compared to the strong growth rate in the first quarter, the increase in 240,000 jobs will still be higher than the average for the second half of 2023. This is also the most optimistic estimate since October 2022. Many have pointed out that the surge in immigration has kept US job growth strong in a business cycle where recruitment has slowed.
Goldman Sachs economist Spencer Hill wrote in a May 2 report: “Compared with normal levels, last year's immigration wave increased the labor supply by about 80,000 people per month. We expect the labor supply to increase by an average of 50,000 people per month this year. “Considering the high vacancy data and the arrival of the spring recruitment season, we think many new immigrants found jobs in the construction and leisure industries during this April statistical cycle.”
Average hourly wage
Forecasters expect the average hourly wage growth rate in April to be 0.3% month-on-month, similar to the increase in March. This would reduce the average hourly wage growth rate to 4% year over year. If actual data is in line with expectations, the average hourly wage year-on-year growth rate will be the smallest 12-month increase since June 2021.
The recent minimum wage increase in California may pose a risk of an increase in average hourly wages, but estimates of the impact vary widely. According to Bloomberg Economic Research, rising wages for employees in the fast food industry in California will drive the average hourly wage growth rate to 0.4% month-on-month, which will exceed market expectations.
Unemployment rate and labor force participation rate
Economists expect the unemployment rate and labor participation rate to remain unchanged in April, at 3.8% and 62.7%, respectively. This means that the unemployment rate will be below 4% for 26 consecutive months and close to its lowest level since the 1960s.
In addition to the overall data, an important concern is the black unemployment rate. The black unemployment rate jumped to 6.4% in March, reaching its highest level in more than two years.
Although the black unemployment rate tends to be more volatile than the overall unemployment rate, it is also seen as a leading indicator of broader trends.
A sign of weakness?
A recent survey of large (ISM) and small (NFIB) business leaders suggests that companies may be reducing recruitment. The number of job vacancies in March also fell to a three-year low.
Most recent new hires have focused on these areas: government departments, healthcare, leisure and hospitality. This is in stark contrast to how most industries were hiring a few years ago.
“Better balance”
Although the hot labor market, particularly unconventional wage growth, seems contrary to the Federal Reserve's desire to reduce inflation, Powell said on Wednesday local time that the labor market is an example of the central bank's monetary policy working.
Powell said at the press conference after the Federal Reserve meeting: “Demand is still strong, especially in terms of labor market demand. But it has cooled down from the extremely high levels two years ago.” Powell pointed out that the labor market is still relatively tight, but the supply and demand situation has entered a “better balance.”
He mentioned the latest labor mobility data. According to the March job vacancy and labor mobility survey report released by the US Bureau of Labor Statistics (BLS), job vacancies fell to their lowest level in three years, recruitment activities contracted, and the number of resignations declined.
He pointed out that the pace of wage growth has slowed significantly, although the downward process has been somewhat bumpy.
Earlier this week, the employment cost index showed that wage growth in the first quarter was higher than expected. Despite this, Powell also quickly clarified that although a gradual slowdown in wage growth would better meet the Federal Reserve's 2% inflation target, central bank policymakers have not set specific targets for wage growth or the labor market.
He said, “Last year, we saw very strong growth, a tight labor market, and a historically rapid decline in inflation. This is because we know that there are two forces at play here: one is the decline in supply-side and demand-side distortions associated with the pandemic; the other is austerity monetary policy.”
Can gold break through the range?
Fxstreet analyst Eren Sengezer analyzed the reflection of spot gold on the previous 35 non-agricultural data to study the influence of non-agricultural agriculture on gold trends.
He said that in the past 35 non-agricultural data releases (excluding data for March 2023), the data was lower than expected in 10 cases, while in 25 cases the data was higher than expected. On average, the deviation between the actual value that fell short of expectations and market expectations was -0.92; the deviation between the actual value that exceeded expectations and market expectations was 1.42. Fifteen minutes after release, if the non-agricultural data falls short of market consensus, the average price of gold rose by $8.33. If the non-agricultural data were higher than market consensus, gold fell by an average of $5.04. The findings suggest that investors are likely to have a stronger immediate reaction to lower-than-expected non-farm data.
Fxstreet analyst Haresh Menghani pointed out that in a situation where fundamental factors are mixed, it is difficult for the price of gold to gain any meaningful impetus, and it is expected that the price of gold will continue to consolidate within the multi-day trading range.
From a technical perspective, the trend of gold price range fluctuations since the beginning of this week has formed a rectangular pattern on the short-term chart, which indicates that it is currently in the consolidation phase. Furthermore, the neutral oscillator indicator on the daily chart reminds traders to be cautious.
Therefore, if the price of gold falls further below the $2,300 mark, it may find strong support near the $2,285-2280 area; however, if this support area can be effectively broken through, it may open the door for a deep pullback, and the price of gold may accelerate to the next important support level of $2,268-2265, and then continue to fall to the $2230-2250 area and the $2,200 integer level.
On the other hand, the current $2326-$2,328 area has become a direct resistance level for gold prices to rebound, followed by the $2,335 resistance level and a high around $2346-2347. If the price of gold can continue to break through this short-term trading range and stand above, it will confirm an upward breakthrough and push the price of gold to the resistance level of 2371-2372 US dollars. Thereafter, the rally may extend further to the $2,400 mark and move towards the historic high of $2431-$2,432 hit on April 12.
edit/lambor