Jobs Report is something the Feds will have to factor into their monetary policy

The August job report was released today by the U.S. Labor Department is a game-changer. It clearly shows that the economic recovery, which had been strong, has taken at least one or two steps backward. This is directly due to the onset of the delta variant, which is much more transmissive has now encompassed the globe affecting millions upon millions of lives.

Just when we thought that we were viewing the end of the tunnel and moving towards a post-pandemic normal, the delta variant has dramatically altered the reality of that coming to fruition. Currently, the United States is reporting over 150,000 new infections daily, and other countries are also experiencing tremendous upticks in their infection rate. It has taxed the hospital’s putting them at full capacity regarding the number of ICU beds they have. It has changed the newfound optimism as we believed we were pretty much through this crisis now to realize that it will linger for much longer than we anticipated.

The loss of lives and the hardships of individuals worldwide are truly disheartening. Helping to mitigate any economic implications is what the Federal Reserve is focusing upon. The only way they can help end the suffering is by assuring a strong economic recovery. Today the U.S. Labor Department reported that only 235,000 jobs were added in August 2021, exceedingly below expectations of economists polled by Dow Jones, which believed the actual number would be closer to 700,000. A Bloomberg survey indicated that there would be an additional 750,000 jobs added last month. These tepid numbers indicate that the delta variant has had a profound impact on economic growth in consumer demand. More Americans have become reluctant to return to the workforce for fear of infection. The U.S. had been on a path for a strong recovery as 17 million individuals (76%) of the 22.4 million jobs lost have now been filled. This means that the United States still needs to fill over 5 million jobs lost during the pandemic. Before the delta variant, economists had forecast that there would be an additional one million Individuals added monthly to the job force, which is now in question.

This is more than a minor setback with such dramatic repercussions that it has to affect the current monetary policy adjustments that the Federal Reserve anticipated that they could begin to implement later this year. This includes their announcement to reduce its quantitative easing, which has been purchasing $120 billion monthly broken into two components; $80 billion each month is spent on treasuries, with the remaining $40 billion allocated to each month to purchase mortgage-backed securities. The Federal Reserve’s dual mandate has put its primary focus on maximum employment and is committed to being data-dependent before enacting any major changes. Possibly the most alarming aspect of this latest news is that many Americans had believed that we were moving towards the end of the pandemic and moving to a post-pandemic reality.

The stark reality is that we have been witnessing light at the end of the tunnel when in reality, we were completely unaware that as one tunnel ends in the case of the pandemic, another tunnel appears. This jobs report was an extremely bullish factor for gold futures taking the precious yellow metal $18.40 higher, with the December 2021 contract currently fixed at $1829.90. But the most profound effect that this report revealed is that the Federal Reserve will have to hold the current plans to normalize their asset purchases by tapering and cement their conviction to leave interest rates near zero for quite some time in the future. These factors have will an extremely bullish impact on the safe-haven asset gold for multiple reasons, which we will detail and discuss in our daily commentary next week

Wishing you, as always, good trading and good health,

Gary Wagner