The latest U.S. unemployment figures have stoked expectations that the Federal Reserve could be about to hit pause on its monthly rate hikes. The new data, released on Thursday by the U.S. Labor Department, show that the number of jobless Americans has now hit an almost two-year high, catching some by surprise.
The number of new claims was up by 28,000 individuals week on week, taking the total number of unemployed to 261,000. Economists had expected the total to be much fewer, with forecasts projecting around 235,000 unemployed. The largest pockets of layoffs were concentrated in California, Ohio, and Minnesota.
Such an uptick in unemployment data could give the Federal Reserve reason to consider halting its painful rate increases. These numbers point to a gradual wave of job cuts working their way across most sectors of the economy – something that could be a precursor to recession. This cooling of the job market should give the Feds food for thought, especially with higher figures potentially coming down the road.
Stuart Hoffman, senior economic advisor at PNC Financial, said more job cuts could soon show up in the figures, noting “Headline-grabbing layoff announcements typically take some time to be put into effect. This delay accounts for the recent rise in initial claims. This effect could also portend another escalation in the months to come, alongside the ever-widening net of jobs cuts spreading across industries.”
Of course, rising unemployment also suggests that the economy is quickly cooling. This view is confirmed by the Institute for Supply Management (ISM). Earlier this week, it reported that the services sector fell to a 50.3 reading for May. It had been 51.9 in April. A reading over 50 indicates growth, with a reading below 50 taken as a sign of contraction. May’s figures mean the service sector barely grew through the month of May – something which again raises a red flag when considering the prospect of a recession.
Economist Thomas Simons said, “Momentum had been very strong in the services sector since the reopening process began, but the sector is clearly cooling down now.”
Collectively, this data raises hopes that the Feds may finally hit pause for the first time since beginning its rate hike program in March 2022. According to CME’s FedWatch Tool, there is now a 73.6% probability that next week’s FOMC meeting will end with an announcement that a rate hike won’t take place next month.
In the wake of this data, the U.S. Dollar Index and U.S. Treasury Yields both lost ground. Gold prices surged in comparison, racing to a £19.61 ($24.60) increase to inch ever closer to the tantalising £1,594 ($2,000) marker. Prices are currently hovering around £1,565 ($1,965).
If next week’s FOMC meeting ends as expected with an announcement that rate hikes are officially paused, gold prices will soar. There is no time to waste. Buy now.
