Shedding Some Light on the U.S. Labor Market

The U.S. labor market is a focal point for markets and investment. On the first Friday of every month, the U.S. Department of Labor reports its latest non-farm payrolls data for the previous month. This report is highly anticipated by investors and certainly has the ability to move markets.

Over the past year, as the U.S. Federal Reserve weighed the possibility of raising interest rates-and eventually did-the jobs data was said to play a key role in any decision made by the central bank. This makes sense, after all, since the Fed’s mandate is to keep price pressures in check and to maintain full employment.

Overall, there is no question that labor conditions have improved since the Great Recession, however, the labor market is likely not as robust as many might think.

According to a recent article from, there were 12 million more jobs in November of 2015 than in November of 2009 when the recession officially ended. And while November marked 69 straight quarters of private sector job growth, it is important to keep this growth in the proper perspective. The same can be said for employment data seen over the last year or so. Although the U.S. has added well over 200,000 jobs per month on average, this number can be a bit misleading.

Looking at this seemingly strong labor market, the fact is that current jobs growth is lagging that of previous economic expansions. The economic expansion seen in the 1990s, for example, saw job gains of over 250,000 in 49 months. During the current expansion, gains of over 250,000 have been much harder to come by and are coming at a significantly slower pace.

Given the severity of the Great Recession, the fact is that the U.S. may not see a return to prior levels of job growth for some time, and the current rate of job and wage growth could potentially indicate some underlying issues.

Headline jobs growth may not tell the whole story

U-3 is the measure typically used but this measure has a serious drawback. This measure takes into those actively looking for work, but it does not take into consideration those that have looked for work, not found any and given up. A broader measure known as U-6, however, may give a more accurate picture as it considers those who have recently looked for work but are no longer actively looking as well as those working part time who would prefer working full time.

The gap between these two measures is nearly five percent.

This simply goes to show that strength in the labor market may not be quite as robust as it appears at first glance. This, along with the fact that wages have not accelerated, could pose some problems for ongoing economic expansion.

The bottom line is this:

While the Fed did raise rates in December as it said it would, this suggests further rate hikes that may not be necessary given non-existent inflation and a labor market that has not returned to pre-recession levels.

While different investors will draw different conclusions, the Fed could elect to hold off on further rate hikes or could potentially hike rates further only to lower them again later.

Either scenario could potentially be bullish for gold. We are of the opinion that rates will remain low for some time as the current expansion may have already largely run its course and as kinks in the economy remain. These issues could potentially lead to a period of sluggish growth or even a return to recession.

A return to recession could wipe out significant investor value. Now may be the time to consider adding further diversification to your portfolio. Gold, silver and other precious metals can potentially boost returns while reducing overall portfolio volatility.

If you already own gold or silver or are just exploring your options for investing in physical precious metals, now may be the ideal time to start a portfolio or add to existing holdings.

Acquiring physical gold or silver has never been easier than it is today. In fact, an IRA account may be used to acquire these metals and save for your financial future. Advantage Gold account executives are here to answer any questions you may have about investing in these precious metals and how they may potentially play a role in your investment strategy. Call us today at 1-800-341-8584 to explore your options.

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