Will the U.S. employment situation bolster energy values?

February 6, 2015 12:42 PM

Today the United States released its monthly employment data for the month of January. The report featured 267,000 new jobs with massive revisions on past data. The participation rate and hourly earnings were up as well at 0.2% and 0.5% respectively (for a full report click here).  While this bodes well for the U.S. economies growth prospects, does it have the same bullish effect on energy valuations?  Let’s take a look at a few of the factors that could lend us some insight on how this data can influence the demand for crude, gasoline and heating oil.

A strong economy would seem to support higher prices simply based on consumer spending increases alone.  Additionally, any inflationary indicators up-ticking would probably indicate that we may have seen the near term bottom for crude (we will use the crude market for analysis purposes, though the refined products should mirror the directional bias, even if the crack spread widens or narrows).  While we have seen some mixed data on inflation through recent CPI and PPI data, the increase in hourly earnings could certainly been seen as a possible leading indicator.  It would be difficult to imagine a scenario where inflation was definitively increasing even as crude declined.  In fact, it is more likely that the inflationary data has only been lagging due to the energy market collapse.  Should we see that ‘tail wagging the dog’ relationship revert to normalcy then we should see energy prices stabilize and begin to grind higher. 

Many of the pundits in the camp stating that the economic recovery and particularly the job market were not performing as well as some thought were leaning primarily on the both the stagnant earnings and the participation rate. We did see the unemployment rate up-tick from 5.6% to 5.%7 but when you factor in the participation rate rise that would make some sense as the slack remains a modest concern. However, more people working fundamentally should increase demand organically through transportation costs and more discretionary travel and spending. 

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About the Author

Tory Enerson is a senior market strategist with the Zaner Group in Chicago, an Independent Introducing Broker. He has been in the futures industry for over 20 years. Beginning his career at the CBOT in 1990, Enerson worked his way up through the industry when he became a member of the CBOT in 1998 and traded for over a decade before beginning to work with clients as a market strategist.