The United States will release the August non-farm payrolls report at 20:30 Beijing time on Friday. With less than two weeks until the much-anticipated first rate cut by the Federal Reserve, Wall Street and traders are paying close attention to whether the performance of the labor market supports a substantial rate cut by the Federal Reserve.

Previously, the US unemployment rate unexpectedly rose to 4.3% in July, triggering the Sam's Rule, which symbolizes economic recession. The number of new non-farm payrolls was also lower than expected, triggering the global stock market crash on "Black Monday" on August 5. The market once believed that the Federal Reserve needed to cut interest rates urgently to save the market. In addition, after Federal Reserve Chairman Powell claimed that it was time to start cutting interest rates, the market was hotly discussing whether the rate cut in September would be 25 or 50 basis points. Therefore, this non-farm payroll report has attracted special attention from the market. Whether the data performance is lower than expected or higher than expected, the prices of various assets are likely to experience significant fluctuations.

“The last jobs report was pretty disappointing,” said Bret Kenwell, U.S. investment analyst at eToro. “It did suggest there were some concerns about the labor market, which is the lifeblood of the U.S. economy… so I think investors are probably a little bit more nervous ahead of this data than they were before.”

From the perspective of market expectations, the U.S. non-farm population is expected to increase by 160,000 in August, a sharp rebound from the previous value of 114,000, which may be related to the fact that the country is no longer affected by hurricanes in August and the surge in the number of immigrants; the unemployment rate is expected to drop slightly from 4.3% to 4.2%, partly due to the reversal of temporary layoffs in July; in terms of wages, the monthly and annual rates of average hourly wages are expected to be 0.3% and 3.7%, respectively, both slightly higher than the previous value, which may be related to the base effect.

"Our data showed very weak July but improved in August," said Julia Pollak, chief economist at ZipRecruiter, adding that nonfarm payrolls are expected to be around 150,000. Data from Paychex, a provider of corporate human resources services, showed that wage growth is also declining. The company found that "average hourly wage growth (2.89%) fell below 3% for the first time since January 2021," and the growth rate fell further to 1.91% in August. Similarly, Homebase, a small business human resources technology company, said a survey of 100,000 companies showed that work hours in August fell 3.5% from July, while the number of employees fell by a similar percentage.

Powell said in a speech at the annual economic symposium in Jackson Hole, Wyoming, that hiring has "cooled substantially" and the Fed does not "seek or welcome further cooling of the job market." Economists interpreted that the Fed may accelerate rate cuts if it believes it needs to offset the impact of slowing employment. In the latest Beige Book, the Fed described employment levels as "generally flat or slightly up in recent weeks." This may indicate that the Fed believes that the labor market may not continue to deteriorate, even if people are increasingly worried that high interest rates may suppress labor demand too much.

According to the U.S. Bureau of Labor Statistics' Job Openings and Labor Turnover Survey (JOLTs) released on Wednesday, U.S. job openings fell to 7.67 million in July, the lowest level since early 2021, and layoffs increased, consistent with other signs of slowing demand for workers. After the data was released, short-term interest rate futures showed that the probability of a 50 basis point rate cut by the Federal Reserve in September was higher than a 25 basis point cut.

The ratio of job openings to unemployed people has fallen back to pre-pandemic levels

Citigroup pointed out that the August employment data will be the key factor in determining whether the Fed officials will choose to cut interest rates by 50 basis points or 25 basis points when they start the interest rate cut cycle in September. Since the August employment data will be released the day before the Fed's September meeting silent period, the 50 basis point or 25 basis point rate cut will be largely determined by this data.

The bank expects the August report to be roughly similar to July, with 125,000 new jobs and the unemployment rate remaining at 4.3%, which are more pessimistic than the market consensus. Citi believes that this will show that the weaker data in July was not caused by temporary factors, but reflects the real weakness in labor demand, which is expected to prompt the Federal Reserve to cut interest rates by 50 basis points in September.

The bank also pointed out that even if the unemployment rate falls slightly, after months of rising, a single month of data may not be enough to convince Fed officials that the unemployment rate will not continue to rise. However, if the unemployment rate falls back to 4.2% or even 4.1%, the performance of non-farm payrolls will be more important. Citi believes that if the number of new non-farm payrolls in August is less than 125,000, even if the unemployment rate falls, a larger interest rate cut may still be a more feasible option.

However, Lydia Boussour, senior economist at EY-Parthenon, said: "The August jobs report should keep the Federal Reserve on track to cut interest rates by 25 basis points at its September policy meeting." She added that "job growth is likely to remain below trend throughout the year, with employers expected to add an average of 100,000 jobs per month for the rest of the year, while the unemployment rate is expected to rise modestly to 4.5% by the end of the year."

While the slowdown in job growth was expected, concerns have been growing recently that the labor market is not just slowing under the pressure of the Federal Reserve's interest rate hikes to curb inflation, but is actually collapsing.

Stephen Dover, director and chief market strategist at the Franklin Templeton Institute, believes that investors may pay more attention to whether the rise in the unemployment rate is due to actual unemployment or to an increase in the labor participation rate. The weekly number of initial unemployment claims (an increase means that more workers are laid off), whether temporary layoffs become permanent layoffs, and the overall increase or decrease in non-farm employment each month will become key data for judging the true performance of employment.

Article forwarded from: Jinshi Data