If one wants to discuss the most difficult-to-predict economic indicators in the US market this year, then nonfarm payroll data is enough to make it onto the list...

In the past few months, there has been a "huge gap" between the actual performance of non-farm data and economists' expectations, which has been repeated many times - even the situation where the market forecast value is as much as 0.05 million or nearly 0.1 million different from the actual announced value has become common.

Moreover, when the market expects that non-farm performance may be tepid, non-farm data often directly exceeds expectations (non-farm data for March, May), but when the market raises expectations, non-farm data will suddenly fall short...

This has led to the direct consequence that the market fluctuations on non-farm night in recent months are often very severe. However, the duration of the market - or the specific influence of the data, often won't really continue all the way to the next week (non-farm is usually released on the first Friday of each month).

This has also led many industry insiders to have doubts about the authenticity of US non-farm employment data at present. Well-known financial blog site zerohedge has repeatedly criticized in the past few months that non-farm data may greatly overestimate the actual situation of the US employment market, and the US government is creating "false data"...

Richard Moody, chief economist at Regions Financial, also pointed out that since the outbreak of the epidemic, the government's employment survey has not been so accurate. Non-farm reports tend to overestimate the preliminary estimate of new job openings, and later revisions often show fewer actual job opportunities created. Moody said, "We don't believe that the job market is as vibrant as the overall employment growth data suggests."

And tonight, the first non-farm night of the second half of the year will come again.

What kind of non-farm night will people welcome this time? Will the data performance still be full of surprises?

June non-farm prospect: What is the market's expectation this time?

According to the schedule, the US Department of Labor is scheduled to release the June non-farm employment report at 20:30 Beijing time tonight. According to the median economist's expectations compiled by industry media, it is expected that non-farm employment will increase by 0.19 million people in June, and the unemployment rate will remain unchanged from last month, staying at 4%. In May, the US employment market added 27.2 job openings, which significantly exceeded market expectations, but the unemployment rate rose to 4%, which was completely contrary to the excellent performance of the non-farm main indicators.

Here are the latest median forecasts of Wall Street on the main indicators and key sub-indicators of non-farm compared to last month:

The seasonally adjusted nonfarm employment in the US is expected to increase by 0.19 million people in June, with the previous value at 0.272 million people;

The US unemployment rate in June is expected to be 4%, with the previous value at 4%;

The US labor force participation rate in June is expected to be 62.6%, with the previous value at 62.5%;

The average weekly working hours in the US in June are 34.3 hours, with the previous value at 34.3 hours;

The average hourly wage in the US in June is expected to increase by 3.90% year-on-year, with the previous value at 4.10%;

The average hourly wage in the US in June is expected to increase by 0.30% month-on-month, with the previous value at 0.40%.

Overall, due to the "difficulty" of non-farm predictions at present, there are large differences in investment bank institutions' predictions for tonight's non-farm data. Some optimistic bankers expect non-farm data to exceed 0.23 million, while pessimistic institutions such as Goldman Sachs believe that the number of new non-farm employment may only be 0.14 million-0.16 million.

Of course, compared with the hot data of 0.272 million people in May, basically industry insiders generally believe that the phenomenon of the US labor market recruitment being hot in June will subside. Bank of America economist Michael Gapen inferred in a weekly research report that this non-farm report is likely to show that the labor market is "cooling but not freezing".

In fact, even if the increase in employment in June slows down as currently expected by the market, the growth rate is still relatively good historically. In the decade before the COVID-19 pandemic, the US economy added an average of 0.183 million new jobs per month.

It is worth mentioning that several sets of US employment data released earlier this week actually performed poorly before the nonfarm payroll data was announced tonight.

For example, the ADP report known as "small non-farm" released on Wednesday showed that employment growth in the US private sector reached the smallest in five months; On the same day, the number of continuous applications for unemployment benefits rose to the highest level since November 2021; The employment index in the June ISM service industry index was negative for the fifth consecutive month...

All these signs indicate that the demand in the US labor market is beginning to slow down, and unemployed people need more time to find new jobs. As a result, the US dollar index and US bond yields once fell sharply before the Independence Day holiday in the United States (Wednesday New York time).

Are indicators such as the unemployment rate more critical in the long run?

For many investors, and as with each previous non-farm payroll night, one question they still need to face is which of the many employment market indicators announced tonight is more important?

As far as the impact on the intraday market is concerned, judging from the experience of the past few months of non-farm nights, the most powerful indicator is undoubtedly still the main indicator of non-farm reports-the number of new non-farm employment added in June. Non-farm data that surprised the market and had a huge difference from expectations in the past few months of "non-farm nights" triggered a big short-term bull market.

This actually makes market participants difficult to question the authenticity of non-farm employment figures. In terms of composition, the Bureau of Labor Statistics' monthly employment report is based on two surveys, both of which currently have conflicting information.

One is a survey of employer paid employees (CES, which is the non-farm data people currently see), which shows an increase of 2.8 million jobs in the past year and an increase of 0.248 million jobs per month this year. The second survey targets households (CPS), which calculates the unemployment rate. The survey shows that in the case of defining the same job position, the number of jobs created in the past year has only increased by 0.216 million.

Many industry insiders believe that CES surveys may overestimate employment growth because they count the jobs created by new companies and underestimate the jobs lost by closed companies. Of course, the CPS survey is not entirely accurate either. If the household survey does not correctly calculate the increase in the number of immigrants, it may underestimate the number of jobs. Finally, the actual number of recruits may fall between these two indicators. In fact, state-level data, including unemployment benefits, shows that the monthly recruitment in the past year may be closer to 0.2 million jobs.

This is actually one of the reasons why people often see that non-farm data is initially released hot, but it often encounters downward revisions later.

This also implies that although the intraday market is likely to follow the main non-farm indicators for short-term fluctuations, the increasingly fake main non-agricultural employment indicators may not be key to guiding the US economy's data or the impact on the Federal Reserve's monetary policy. This was actually proven last month-although non-farm payroll was hot, it was almost the only bright spot in US economic indicators in the month. Due to a series of economic data that was lower than expected later, the Fed interest rate cut expectations continued to rise, and US bond yields fell sharply.

In contrast, the unemployment rate may particularly be valued by long-term investors or "Fed observers". Nick Bunker, director of economic research at Indeed Hiring Lab, said, "At the time of the release of this report, economic uncertainty has increased compared to the past few months. Specifically, I am more concerned about the unemployment rate, which has been slowly rising."

Among many sub-item data, the important of the unemployment rate will surpass the number of new non-agricultural populations. The bank pointed out that technically, when the US unemployment rate rises to 4.2%, it will trigger the Sam rule. According to the Sam rule, when the three-month moving average of the unemployment rate rises 0.5 percentage points or more relative to the low point of the previous 12 months, the US economy will be in a recession.

Ernie Tedeschi, a former economist of the Biden administration and currently serving at the Yale University Budget Laboratory, said, "This time may be really different. The unemployment rate may be rising because it is approaching the natural unemployment rate." Similarly, "Although the labor market has not deteriorated rapidly, it is not as strong as it seems on paper, and the Federal Reserve needs to pay attention to this."

Will tonight's data affect the Fed's interest rate cut window?

Finally, the performance of a series of employment report indicators tonight is obviously not something that investors can ignore when making decisions about the Fed.

Currently, Powell and other officials from the Fed still generally believe that the US labor market is cooling at a speed that the central bank can accept. Powell said at the Sintra Annual Conference of the European Central Bank on Tuesday that the labor market has not cooled too fast, suddenly or sharply. On the contrary, Powell believes, "Labor market data has been developing as we hoped to see and as we have seen."

However, some industry insiders are currently warning that a strong employment report may not necessarily make the Fed 'more hawkish,' but a weak report could support their reason for cutting interest rates in September.

Bloomberg economists Anna Wong, Stuart Paul and others wrote in their Friday data preview: "Overall wages may indicate that the Fed can be patient in the issue of interest rate cuts, but the recent rise in unemployment rate signals more urgency. We believe that the Fed will have enough evidence to begin cutting interest rates at the September FOMC meeting."

According to the CME Group's FedWatch tool, investors currently believe that the probability of the Fed cutting interest rates in September is close to 73%.

It's worth mentioning that although the industry expects the Fed to be highly unlikely to cut interest rates at the end of this month, some institutional experts still urge investors not to completely ignore this possibility. TSLombard economists pointed out in a recent report that if the unemployment rate rises in June, the possibility of an interest rate cut in July may ultimately be triggered.

TSLombard economist Steven Blitz's report emphasizes the policy actions that the Fed may take. The report pointed out that under the impact of the decline in PCE data, which affected the push of Taylor's rule, the Fed may cut interest rates. The Fed is shifting its focus from inflation control to managing signals of economic growth, and the June employment data this week is playing a crucial role in its decision-making.

Wells Fargo senior economist Sarah House and other economists have stated that with the rise in unemployment claims and the unemployment rate at its highest level in more than two years, the current major concern is that the labor market will continue to slow down, and its ultimate landing point will be weaker than that before the pandemic.

House wrote in a client memo, "Given that the labor market has visibly cooled in the past year, we think further softening in the labor market will become more concerning and not be welcome by the Fed."

Editor/new