iM Securities interpreted on the 9th that the somewhat excessive market anxiety following the release of the U.S. employment data in August reflected the market sentiment demanding a 'big cut' at the September Federal Open Market Committee (FOMC) meeting.
Earlier, right after the August U.S. employment data was released on the 6th, the three major indices of the New York Stock Exchange showed a decline of 1-2%. The U.S. Department of Labor reported that nonfarm payrolls in August increased by 142,000 compared to the previous month. Although this was higher than the previous month's increase (89,000), it fell short of experts' estimates (165,000). The unemployment rate in August was 4.2%, slightly down from 4.3% in the previous month.
Economist Park Sang-hyun said, "The August employment data is not at the shock level like the July data, and depending on interpretation, it can be evaluated as favorable, but the financial market reacted sensitively, seeing only the negative aspects." He added, "In our judgment, based solely on the August employment data, the likelihood of the U.S. economy entering a recession immediately is not high."
He continued, "Although the job growth figures for June and July were revised downward, the number of jobs in August improved compared to July," adding, "The three-month average increase in nonfarm payrolls is also showing a slowing trend, but as of August, it recorded 116,000, which is relatively better than the level just before the previous recession."
He further noted, "The unemployment rate also temporarily paused its upward trend, falling by 0.1 percentage points to 4.2% compared to the previous month," and explained, "Among the household employment survey used to calculate the unemployment rate, the number of employed persons in households increased by 168,000 in August compared to the previous month. While this figure had shown a divergent trend from nonfarm payrolls in the first half of the year, which had signaled a slowdown in the labor market, it instead showed a stable increase."
He presented two signals supporting the argument that the U.S. economy will not immediately enter a recession phase: the number of jobs in the construction sector and the weekly initial unemployment claims.
Economist Park emphasized, "Before entering a recession, the number of jobs in the construction industry mostly slowed sharply or decreased, serving as a signal of recession entry. However, in August, construction sector jobs increased by 34,000 compared to the previous month, maintaining a solid job growth trend."
He added, "During the financial market shock in early August, we emphasized that the stabilization of initial unemployment claims is an important barometer for the labor market," explaining, "Although nonfarm payrolls and the unemployment rate show significant monthly volatility, the weekly initial unemployment claims indicate that there is no major change in the layoff trend, which is one of the important signals of a recession."
However, regardless of the possibility of a U.S. recession, the likelihood of a big cut by the U.S. Federal Reserve (Fed) has increased.
Economist Park said, "The financial market is not satisfied with an orderly rate cut," adding, "It is strongly demanding a so-called big cut from the Fed. Considering the disinflation trend along with insurance measures, the financial market seems to feel that a 25 basis points (bp) cut alone is insufficient."
He continued, "We also believe that, separate from recession risks, the possibility of a big cut at the September FOMC meeting has increased," and predicted, "If a big cut is made at the September meeting, the total rate cut by the Fed until the end of this year will be around 125 bp."
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