Tonight at 8:30, the US will release its latest non-farm payrolls report. The market believes that the US is expected to add 0.175 million non-farm payrolls in July, the hourly wage rate will record 0.3% per month, and the unemployment rate is expected to remain at 4.1%. Some investment bank analysts believe that tonight's non-farm payrolls report may fall short of expectations. The main downside risk comes from Hurricane Beryl, which Texas previously experienced.

J.P. Morgan pointed out that “Beryl” landed during the reference week of the July employment report, which may distort the data released tonight. Severe weather events will suppress regional data, but they may also affect national data. As a result of the hurricane, the number of first-time jobless claims in Texas after seasonal adjustments surged by more than 6,000 in the week ending July 13. J.P. Morgan believes that the hurricane may reduce the number of non-farmers by 0.02 million to 0.03 million, but it is important to note that August may rebound and increase by the same amount due to weather-related reasons. In other words, employment growth in July was weaker than expected, which does not necessarily indicate that the labor market itself is deteriorating.

Goldman Sachs also pointed out in the research report that Hurricane “Beryl” caused power outages for more than 2 million Texas residents, which clearly affected employment in the state, but the impact on non-farmers may not be significant. Past analyses have found that the average impact of major hurricanes on employment growth is around 0.025 million. About three-quarters of Texas employees are paid every two weeks, half a month, or a month, so they may still be counted as “employed” during the hurricane's landfall. Employees are not counted as unemployed in agency surveys unless they have not participated in a job for the entire wage reference period. This will cause the hurricane to have a moderate impact on non-farm payrolls.

Economists estimate that a large portion of the declining non-farm population is likely to be concentrated in the construction, leisure and hospitality, transportation, and retail industries. However, this impact may be partially offset by the fact that some car manufacturers delay shutdowns to readjust production of new models.

“We expect the July slowdown may have underestimated the true rate of employment growth,” said Yelena Shulyatyeva (Yelena Shulyatyeva), a senior economist at Bank France and Pakistan. “The distortions caused by the hurricane are expected to be reversed in August.”

“Beryl” may also have boosted the average hourly wage data because most workers forced to stay at home work in lower-paying industries, and the hurricane may have reduced their working hours. The market expects the average hourly wage to rise 0.3% per month, in line with the increase in June, and is expected to increase by 3.7% year-on-year. This will be the smallest year-over-year increase since May 2021. Although wage growth is still higher than the 3%-3.5% range needed by the Federal Reserve to achieve the 2% inflation target, this will continue the data trend favorable to inflation.

Analysts also expect the unemployment rate to remain at 4.1%, which is the level after three consecutive months of increase. Since hitting a 50-year low of 3.4% in April 2023, the unemployment rate has risen, leading to concerns about a recession. Economists view these concerns as misleading, pointing out that layoffs are still at a historically low level.

“This is important because it means that the economy is not experiencing the usual vicious cycle, where unemployment and loss of income cause laid-off workers to spend less, further leading to more unemployment,” Goldman Sachs Group economists wrote in a report. “The rise in unemployment is due in part to a surge in labor supply driven by immigration, and employment growth has yet to fully keep up.”

“The labor market is doing well, but there are clear signs that momentum is also weakening,” said Ernie Tedeschi, director of economics at Yale Budget Lab. “The way the deceleration is consistent with the upper limit of the labor market, rather than worsening.”

edit/emily