Source: Jin10 Data

The US Bureau of Labor Statistics will release the latest non-farm report tonight at 20:30, covering key employment market indicators closely watched by the Federal Reserve and the market, such as unemployment rate, non-farm population, salary, labor participation rate, and so on.

Wall Street investment banks forecast that the June unemployment rate in the US will remain unchanged at 4%, and the seasonally adjusted non-farm employment is expected to increase by 0.19 million people, while the average hourly rate is expected to record a monthly rate of 0.3%, lower than the previous value of 0.4%, with a year-on-year rate of 3.9%, considerably slower than the previous 4.1%; labor participation rate is expected to rise slightly from 62.5% to 62.60%.

Several data released this week show that the US economy and employment performance are gradually becoming weak, leading to an increase in Wall Street's expectations of a Fed rate cut, making tonight's report even more significant in this context.

The US labor market is gradually slowing down.

With high interest rates suppressing labor demand and leading to an increase in layoffs, the performance of the US labor market seems to be gradually cooling down.

Wednesday's ADP employment report showed that private sector employment increased by 0.15 million people in June, lower than the expected 0.16 million and the lowest in four months, after an increase of 0.157 million people in May. The ADP report also showed that the year-on-year growth rate of wages increased by 4.9%, the slowest growth rate in nearly three years.

Nela Richardson, Chief Economist at ADP, said: 'Job growth has been steady, but not broad-based.' 'June would have been a pessimistic month if it weren't for hiring rebounds in the leisure and hospitality industries.'

Data released by the US Department of Labor on Wednesday showed that initial jobless claims increased by 4,000 to 0.238 million after seasonal adjustment in the week ending June 29. The four-week moving average of claims increased by 2,250 to 0.2385 million, the highest level since August last year. In addition, the number of continued claims rose for the ninth consecutive week, reaching the highest level since the end of 2021, indicating that it takes longer for job seekers to find work.

Michael Hansen, economist at JPMorgan, believes that the performance of both of these data is worth noting, as the absolute value and growth rate so far seem to be consistent with the gradual slowdown of the labor market, but continued weakness over the next few weeks would be more worrisome for the outlook of the US labor market.

In addition, a survey by the Institute for Supply Management (ISM) also shows a slowdown in labor market momentum. The survey shows that employment in the US service sector has declined six times in the past seven months. However, the employment indicator for the service industry at ISM cannot reliably predict wage growth. Respondents in the survey said, 'We continue to deploy automation.' 'Business remains stable despite the tight labor market.'

What is the focus of this report?

Among the numerous sub-indicators, the importance of the unemployment rate is expected to surpass the number of new non-farm jobs, according to the analysis by BNP Paribas. The bank pointed out that technically, when the US unemployment rate rises to 4.2%, it will trigger Okun's Law. According to Okun's Law, when the three-month moving average of the unemployment rate rises by 0.5 percentage points or more relative to its low point in the previous 12 months, the US economy will enter a recession. Fortunately, the bank predicts that the unemployment rate will continue to remain at 4%.

The US unemployment rate has remained below 4% for 27 consecutive months, the longest consecutive record since 1970. However, with the unemployment rate rising to 4.0% last month, this record came to an end. Economists at Macrobond warned that this could indicate that a recession is coming, just like in 1949, 1953, 1957, 1970, 2001, and 2020. However, Goldman Sachs responded to this view two weeks ago, stating that the labor market is at a turning point, but did not indicate the possibility of an economic recession.

If the performance of the labor market continues to deteriorate, the Fed will cut rates earlier. Fed Chairman Powell has repeatedly emphasized that corresponding measures will be taken to cope with unexpected deterioration in the labor market. In fact, the Fed is facing a turning point, where rate cuts may help the weak job market but also hinder its goal of lowering inflation. So far, while inflation has fallen sharply, the unemployment rate has only slightly increased. However, if the labor market deteriorates significantly, it means widespread unemployment, even for those who are still employed, and spending may also decrease.

At its latest meeting, the Fed appeared more hawkish than expected and reduced its expected rate cuts for the year from three to one. However, the market is not buying this. Weak retail sales data in May and the latest slowdown in core PCE inflation have raised investors' expectations for rate cuts. According to federal funds futures, investors expect a 48 basis point rate cut by December, and the probability of a 25 basis point rate cut in September is about 75%.

The non-farm employment report released tonight at 20:30 may make the situation clearer.

Editor/Lambor