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Unemployment Discrepancy and its Impact on Precious Metals

Commodities / Gold & Silver 2009 Dec 08, 2009 - 06:33 PM GMT

By: Dr_Jeff_Lewis


Best Financial Markets Analysis ArticleBased upon November’s statistics, investors quickly sold off metals as the Bureau of Labor Statistics’ unemployment rate painted a picture that the recession may finally be coming to an end.  Although the BLS statistics were positive, there's still a large discrepancy between the two leading reports.

How Government Calculates Unemployment

Every survey of unemployment works differently, although the US government's calculations are likely the most blurred. 

First, the BLS non-farm payroll report does not include those who have hopelessly given up their search for a job.  These workers are called discouraged workers, and they are not included in the official tally. 

Next, the government's report only includes those who qualify for unemployment benefits.  After officially being unemployed, benefits last as long as 26 weeks, as well as an additional 13 weeks for those who qualify, or roughly nine months.  Thus, those who do not qualify, or are unemployed for longer than nine months, are automatically removed from the number of unemployed.

How ADP Calculates Unemployment

The ADP unemployment report is generally considered to be the free market calculation of unemployment.  ADP stands for Automated Data Processing, which the largest payroll company in the United States, processing payroll for nearly one in every six private sector employees. 

The ADP employment report utilizes the data from its clients and their employees, which is then extrapolated to fit the overall economy.  The amount of data ADP possesses, as well as the many different sizes and types of businesses for which it manages payroll, allows it to accurately reflect changes in employment.

The Real November Numbers

The difference between the BLS report and the ADP employment report is rarely, if ever, as dramatic as it was for November 2009.  The BLS report showed that the unemployment rate had dropped from 10.2% to 10% and a total of 11,000 jobs were lost in the month of November. 

The ADP report, which is released two days earlier, indicated otherwise, showing that 169,000 jobs had been lost – nearly 16 times more than the BLS report!

What Happened After the Reports?

Investors took the November BLS numbers in stride, selling off their precious metals on the hope that an improving job climate would force the Fed to raise rates to fight inflation, regardless of how weak the ADP numbers proved to be.  Both gold and silver tumbled more than 5% in one day, mostly due to a seemingly improving economy.

Prevailing Thought is Wrong

Whether or not the economy is improving, the prevailing thought that new Fed action would remove inflation from the marketplace is incorrect.  Not once in history has the Federal Reserve ever raised rates past equilibrium of money supply; otherwise, we wouldn't have inflation. 

In reality, low rates are politically popular, and they provide cheap, short and fast ways to improve the capital markets.  With the monetary base having already expanded, and the physical economy at its weakest in decades, the Federal Reserve knows its only way out is to allow inflation to happen.  That, for the precious metals investor, is music to the ears.

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of and

Copyright © 2009 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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