According to the Futu Securities research report on the US August non-farm data, the team believes that the sharp increase in temporary unemployment numbers in July, including weather disturbances and other factors, may see some degree of recovery in August. The judgment remains that the Federal Reserve will cut interest rates in September, with about 2 cuts throughout the year, each time by 25 basis points. The next important milestone is the Federal Reserve's interest rate meeting on September 17-18. It is worth observing whether there will be a round of policy resonance in non-US markets if the Federal Reserve's interest rate cut window is fulfilled as expected.

The following is the summary of the research report:

First, according to the U.S. Department of Labor data on September 6, US August non-farm data improved compared to July, but slightly lower than market expectations. The new non-farm data for August was 0.142 million, with a market expectation of 0.165 million, and a previous value of 0.089 million (this report revised the new non-farm data for July and June to 0.089 million and 118,000, respectively). In terms of employment breadth, the employment diffusion index for August rose back above the 50 boom-bust line to 53.2%, compared to the previous value of 47.8% (a value >50 indicates that the number of expanding employment enterprises is more than shrinking), with an average monthly value of 59.4% in 2023.

Second, the new non-farm structure in August was better than July, with the health insurance industry contributing 62% of the new additions in July. In August, there was some improvement in breadth, with leisure and hotel industry, health care services, and construction as the main contributors, with new additions of 0.046 million, 0.044 million, and 0.034 million, respectively. The drag sectors were durable goods manufacturing, retail trade, and information industry, with new additions of -0.025 million, -0.011 million, and -0.007 million, respectively. Manufacturing employment turned negative again, with a new addition of -0.024 million and a previous value increase of 0.006 million. Government sector employment slightly rebounded to 0.024 million, with a previous value of 0.015 million, reflecting a retracement in employment by local governments that were previously strong. Overall, the data aligns with our previous judgment. After the extremely low non-farm data in July, we pointed out that the sharp increase in temporary unemployment numbers in July, including weather disturbances and other factors, may see some degree of recovery in August.

Third, the household survey data released for the same period showed a slight recovery compared to July. The U.S. unemployment rate in August (U3) fell from 4.25% to 4.22%, with temporary unemployment declining by 0.19 million, impacting the unemployment rate by approximately -0.1 percentage point. New entrants to the workforce increased by 0.068 million, impacting the unemployment rate by approximately +0.05 percentage point. In other words, the temporary factors (such as weather) that caused the increase in the July unemployment rate did not continue, as we mentioned in our previous report. As for the significance to the economy, the number of permanently unemployed individuals showed a slight increase, indicating that overall employment pressure is on an upward trend but still manageable. In terms of age, the unemployment rate for the 16-19 age group increased by 1.7 percentage points, while the unemployment rate for those aged 20 and above decreased by 0.1 percentage point. In simple terms, the increase in the unemployment rate for the youth labor force reflects a cooling in hiring demand, while the slight increase in the number of people permanently losing jobs suggests a marginal upward trend in companies' willingness to lay off, but the magnitude is currently limited.

Fourth, according to the Samuelson rule, if the average unemployment rate for the past 3 months is 0.5 percentage point or more higher than the lowest 3-month average in the past year, the probability of a recession is higher. The average unemployment rate from June to August was 4.2%, while the lowest point in the past 12 months was 3.6%, resulting in a difference of 0.57 percentage point. However, it should be noted that the current rise in the unemployment rate should not be viewed from the perspective of traditional economic cycles. First, as we pointed out in our previous report on the U.S. July non-farm data and the Samuelson rule, there have been significant changes in the employment population structure in the post-pandemic United States, with a large influx of immigrants leading to a substantial increase in the labor force and a significant increase in the number of disabled people seeking employment. Samuelson himself has also emphasized this aspect. Second, the size of the current fiscal deficit expansion is historically unprecedented, and the economic fluctuations it brings are larger than before. The unemployment rate of 3.5% in July 2023 was the lowest level since June 1969, indicating an overheated job market at the time due to the combined effects of the post-pandemic and fiscal subsidy factors. The current unemployment rate is returning from an ultra-low level to the natural unemployment rate level (4.4%), similar to the situation where the increased growth rate in the number of people continuing to claim unemployment benefits did not lead to a recession.

Fifth, the growth rate of US wages in August slightly exceeded expectations. The hourly wage increased by 3.8% YoY, higher than the expected 3.7% and the previous value of 3.6%. We have a few points to add about this data: First, the wage growth rate is currently at a historically high level, overall in a downward trend, and the narrowing gap between employment supply and demand is gradually leading to a slow decline in wage growth. This month's data is a rebound in the middle, showing more resilience. Secondly, the wage growth rate maintains resilience, supporting the consumption willingness and ability of residents, especially those with medium and low incomes. Thirdly, with the backdrop of continued inflation decline, the growth rate of real income is rising. Fourth, US labor productivity data has rebounded significantly from 2022, driving the growth rate of unit labor cost to decline, providing support for corporate profits against the backdrop of wage growth.

Sixth, on the day the data was released, Fed Governor Waller and New York Fed President Williams provided key guidance on future monetary policy. Waller believes that the economy is currently showing overall resilience and has not proven to be in a recession or heading towards a recession. Therefore, Waller believes that signs of economic and labor market cooling should be interpreted as softening rather than deteriorating. We understand that Waller's speech is generally hawkish. Although he also mentioned that if the data deteriorates, he would support continuous rate cuts, he still supports cautious rate cuts at the current stage. Williams mentioned at the Foreign Relations Committee event that monetary policy will gradually transition to neutral, implying that the Fed's rate cut in September should be somewhat cautious. In addition, Williams expects GDP growth this year to be between 2-2.5%, and the unemployment rate at the end of the year to be around 4.5%, indicating a moderate slowdown in nominal growth and a gradual rise in the unemployment rate as the baseline scenario. Waller and Williams' speeches are generally consistent with our judgment of a soft landing for the US economy. We maintain our judgment that the Fed will start cutting interest rates in September, cut interest rates about twice within the year, each time by 25 basis points.

Seventh, after the employment data was released, the Fed Watch data showed that the probabilities of a 25 basis points and 50 basis points rate cut by the Fed in September are 70% and 30%, respectively, with the previous values being 60% and 40%; the probabilities of a 25 basis points and 50 basis points rate cut by the Fed in November are 27% and 55%, respectively, with the previous values being 33% and 49%. In terms of asset reactions, there was little change in the 10-year US Treasury yield, falling by 2 basis points to 3.70%. The US dollar index slightly rebounded to 101.177. For the overvalued US stock market, the lack of confirmation of a larger rate cut constitutes bearish news, and the three major US stock indexes have all fallen significantly. Gold initially rose and then fell, ultimately closing slightly down by 0.77%. The next key point is the Federal Reserve's interest rate meeting on September 17-18. If the Fed's rate cut window is fulfilled as expected, it will be worth observing whether there will be a round of policy resonance cycle in non-US markets.