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Weak Jobs Report, Rate Hike & Recession Concerns Push Financials Down, Gold Up

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With the private sector adding only 38,000 jobs in May, the U.S. labor market made its worst growth showing in more than five years and made a hike in interest rates less likely for the summer, economists say.

Economists had anticipated a jobs gain of about 160,000.

“The very weak May jobs report calls into question whether the Federal Reserve will move to raise interest rates in June or July,” explained Jim Wyckoff, a Kitco senior technical analyst, in a note on Friday.

The market put the probability for a June move at 6%, down from the previous 21% chance, according to the CME Group. The chance for a July hike is now 42% vs. 58%. Still, the probability of a September rate hike is now 52%.

In addition, JPMorgan analysts say the likelihood of a recession beginning within the next 12 months has never been higher during the current economic recovery.

“Our preferred macroeconomic indicator of the probability that a recession begins within 12 months has moved up from 30% on May 5 to 34% last week to 36% today,” wrote Jesse Edgerton in a report Friday. “This marks the second consecutive week that the tracker has reached a new high for the expansion.”

Investors turned away from equities in general, driving the SPDR S&P 500 ETF Trust (SPY) down about 0.4%.

Impact on Financials, Gold

Meanwhile, investors lost interest in financial stocks, which benefit from rising rates via cash-sweep accounts. The Select Sector SPDR Financial ETF (XLF) dropped about 1.5% Friday.

LPL Financial (LPLA), for instance, was down 6%; Charles Schwab (SCHW) sank 5%, and TD Ameritrade (AMTD) dropped 4.5%. Bank of America (BAC) fell 3.5%, while Morgan Stanley (MS) weakened 3%. 

At the same time, investors turned to safe-haven assets like gold, pushing the SPDR Gold ETF (GLD) up 2.5%.

According to, gold ETFs attracted over $3 billion in new assets in May, with GLD drawing some $8.8 billion in the first five months of 2016.

More Job News

Commenting on Friday’s report Department of Labor Secretary Tom Perez said, “At this point in a recovery, we expect to see trade-offs between job growth and strong wage growth.” In a blog post, Perez noted that a recent 13-day strike by some 35,000 workers at Verizon contributed to May’s weaker-than-expected figure.

The DOL leader says job openings are “nearly as high as they have ever been” at 5.8 million as of the end of March. “Even with today’s report, we have averaged 150,000 jobs added each month, so far in 2016, well above the pace we need to sustain a low unemployment rate,” he explained.

Health care added 46,000 jobs in May, while positions in mining fell by 10,000. Plus, employment in the information declined by 34,000 in May.

“Within manufacturing, employment in durable goods declined by 18,000 in May, with job losses of 7,000 in machinery and 3,000 in furniture and related products,” Friday’s DOL report explained.

Employment in professional and business services rose by 10,000 in May, down from 55,000 in April.

“Within the industry, professional and technical services added 26,000 jobs in May, in line with average monthly gains over the prior 12 months,” the report stated.

Employment in temporary-help services dropped by 21,000) and is down by 64,000 thus far this year.

Employment in other major industries, including construction, wholesale trade, retail trade, transportation and warehousing, financial activities, leisure and hospitality, and government, changed “little over the month,” according to the Labor Department.

Average hourly earnings for all employees on private nonfarm payrolls increased by $0.05 to $25.59, following an increase of $0.09 in April. Over the year, average hourly earnings have risen by 2.5%.

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