As the U.S. August employment market indicators were released, Daishin Securities analyzed that expectations for a big cut (0.5% rate cut) by the U.S. Federal Reserve (Fed) in September have diminished. Although the slowdown in the U.S. employment market has become clear, it limits the immediate possibility of a recession.
Lee Ha-yeon, a researcher at Daishin Securities, stated, "The slowdown in employment without layoffs limits the immediate possibility of a recession, which has lowered expectations for a big cut by the Fed in September."
U.S. nonfarm payrolls in August showed a clear slowdown trend. Lee explained, "Although there were not many layoffs, companies reduced overall employment levels by only hiring necessary personnel, cutting shift work, and natural attrition."
New job figures for June and July were also revised downward from initial reports, resulting in a three-month average of 116,000. Lee diagnosed, "Considering that the monthly average nonfarm payrolls before the pandemic in 2019 and 2018 were 166,000 and 190,000 respectively, the employment market has confirmed a slowdown beyond normalization regardless of temporary factors."
Lee expects the slowdown trend in U.S. nonfarm payrolls to continue for the time being. He analyzed, "The manufacturing sector’s economic slowdown trend is ongoing, and concerns about economic slowdown are also being raised in service industries with high employment shares. However, since the slowdown in employment without layoffs limits the immediate possibility of a recession, expectations for a big cut by the Fed in September have decreased."
As the market anticipates a continued employment slowdown, it is reflecting a rapid interest rate cut to a neutral rate level within a year. The blackout period begins on the 7th ahead of the Federal Open Market Committee (FOMC) meeting scheduled for the 18th. Lee forecasted, "It will be difficult to gauge the Fed’s economic assessment and the pace of future rate cuts until the release of the outlook materials at the September FOMC meeting, so market caution will persist."
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