As a key indicator for deciding whether the Fed will cut interest rates by 25 or 50 basis points two weeks later, the U.S. Department of Labor released the non-farm payroll report for August at 20:30 Beijing time on Friday evening.
The latest data shows that the number of non-farm employment in August rebounded to 0.142 million people from the previous month, with a median analyst expectation of 0.165 million people, and the unemployment rate dropped to 4.2%, in line with expectations. It should be noted that these two data come from two different surveys, employment figures from sampling surveys of enterprises and government units, and the unemployment rate from household surveys.
Of note, the data for July was revised downward from 0.114 million to 0.089 million, and the data for June was revised downward from 0.179 million to 0.118 million. The total downward revision for the two months added 0.086 million new jobs.
In addition to the two most closely watched data points, the US Bureau of Labor Statistics also disclosed:
The main growth in August came from the construction industry (+0.034 million) and the healthcare industry (+0.031 million), while the manufacturing industry saw a decline of 0.024 million in employment, mainly reflecting a decrease of 0.025 million in employment in the durable consumer goods industry. Other major industries saw little change.
The average hourly wage of all employees in the private nonfarm sector increased by 14 cents to $35.21, with a year-on-year growth rate of 3.8%.
The average working week of employees in the private non-farm sector increased by 0.1 hours in August to 34.3 hours.
Implications for the 'first decline' magnitude
With Fed Chair Powell publicly stating a lack of desire for further cooling in the labor market, the market's attention to U.S. employment data suddenly increased. Earlier, the market generally expected that the details in this report would bring significant differences in the extent of the rate cut in September.
Satyam Panday, chief economist for S&P Global Ratings in the United States and Canada, had previously expected that under the baseline scenario, non-farm employment in August would be between 0.15-0.18 million, so the Fed would choose to cut interest rates by 25 basis points. But if it is below 0.13 million, they may lean towards a rate cut of more than 25 basis points, as this has been below expectations for two consecutive months.
Mary Daly, the President of the Federal Reserve Bank of San Francisco, also stated this week that Federal Reserve officials do not want to wait to see the economy weaken (to take further action), because it may be more difficult to prevent a more severe economic slowdown. Daly said, 'If you are at an inflection point in the economy, it is too late to wait for the data to be released. You cannot solely rely on this data because it looks backward.'
According to the rules, Friday is also the last day for Federal Reserve officials to publicly exchange opinions, after which they will enter the 'quiet period'. Officials scheduled to speak on Friday include New York Fed President William Williams and Fed Governor Lael Brainard.
After the data was released, CME's "Fed Watch" tool, which reflects the direction of the federal funds futures contract, showed a 59% probability of a 50 basis point rate cut in September, and then fell again. From a practical standpoint, a probability of around 50% does not indicate a clear conclusion, but rather suggests that the chaotic situation and heated discussions regarding "how much rate cut in September" will continue for the next two weeks.
Meanwhile, there has also been significant volatility in the U.S. bond and stock markets. Just a few days ago, the yield on U.S. Treasury bonds, which had been inverted, saw a sharp decline. The 10-year Treasury bond yield plunged by 3.66%, while the 2-year Treasury bond yield dropped by 9 basis points to 3.65%.
The US stock market is slightly stronger, with all three major index futures rising in pre-market trading.
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