August 'Nonfarm Payroll Report' Key
Employment Normalizes with 165,000 Jobs... Unemployment Rate Expected to Decline
Gradual Labor Market Easing Anticipated for Soft Landing
Fed Likely to Cut Interest Rate by 0.25%P in September
The 'fateful September' has begun, marking the end of the United States' two-and-a-half-year-long intense tightening and a shift in the direction of monetary policy. Job data, including the August employment report and a series of employment indicators to be released this week, are expected to determine the extent of the Federal Reserve's (Fed) rate cut in September. As concerns about a U.S. economic downturn turn into expectations of a soft landing, unless a rapid cooling of the labor market is confirmed, the Fed is likely to implement a 'small cut' of 0.25 percentage points in September.
According to the U.S. Bureau of Labor Statistics (BLS) under the Department of Labor on the 1st (local time), the August nonfarm payroll report will be released on the 6th.
According to expert forecasts compiled by Bloomberg, nonfarm payrolls are expected to have increased by 165,000. This is a significant increase compared to July's 114,000, which had sparked recession fears due to an 'employment shock.' However, the recent three-month average is expected to drop to 150,000, the lowest level since early 2021. The unemployment rate is expected to have fallen by 0.1 percentage points to 4.2% in August, after rising from 4.1% in June to 4.3% in July.
Wall Street expects that if nonfarm payrolls fall below 100,000 or the unemployment rate rises above 4.4%, the Fed will implement a 'big cut' of 0.5 percentage points at the Federal Open Market Committee (FOMC) meeting scheduled for the 17th-18th. This reflects the view that if the labor market cools rapidly, the Fed may expand the rate cut. Fed Chair Jerome Powell also mentioned in his speech at the Jackson Hole meeting on the 23rd of last month that the timing and pace of rate cuts depend on future data, outlook, and risk balance.
However, as the U.S. economy continues to show solid growth based on strong consumer spending, the prevailing view is that a small cut is more likely at this time. On the 29th of last month, the U.S. Department of Commerce revised the preliminary estimate of the second-quarter economic growth rate upward from an annualized 2.8% to 3%. This confirmed that personal spending, the engine of U.S. economic growth, was stronger than expected. The Atlanta Federal Reserve Bank's 'GDP Now' forecast also raised its estimate for third-quarter growth from 2% to 2.5%.
Additionally, with the U.S. labor market gradually slowing and expectations growing that the August employment report will be stable, the current interest rate futures market reflects a 70% probability that the Fed will cut rates by 0.25 percentage points in September. There is a 70.1% chance that the Fed will implement small cuts at all three meetings in September, November, and December, with at least one big cut among them.
Kevin Flanagan, Chief Bond Strategist at WisdomTree, analyzed, "Chairman Powell prioritized employment at Jackson Hole," adding, "Nonfarm payrolls will be a very important figure for both the market and the Fed."
This week, in addition to the August employment report, a large number of other employment indicators are scheduled for release. On the 4th, the July Job Openings and Labor Turnover Survey (JOLTs) will be released; on the 5th, ADP's August private employment report and weekly initial and continuing unemployment claims will be published. Economic indicators will also be released. On the 3rd, the August manufacturing Purchasing Managers' Index (PMI) from S&P Global and the Institute for Supply Management (ISM), which gauge manufacturing business conditions, will be announced. The Fed's economic report, the 'Beige Book,' will also be released on the 4th.
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