Key Takeaways
1. In August, the United States added 0.142 million non-farm jobs, lower than the expected value of 0.16 million, but higher than the previous value of 0.089 million. The data for the previous two months was revised down by a total of 0.086 million. The unemployment rate is 4.2%, in line with expectations and lower than the previous value of 4.3%. The average hourly earnings increased by 0.4% compared to the previous month, higher than the expected value of 0.3% and the previous value of 0.2%. It is worth noting that the unemployment rate this month still triggers the "Samaritan's rule".
2. After the data was released, US stocks and gold fell, the US dollar index and US bond yields rose. The market's expectation for a Fed rate cut did not change much, with a probability of about 30% for a 100-125 basis point rate cut by the end of the year and a 50 basis point rate cut in September.
3. Overall, the August employment data in the United States is not bad, with some improvement compared to the previous month, which confirms the weather disturbance in July's data. However, the data is not strong enough to dispel market concerns about a US recession, which means that the market needs to observe more data to confirm or refute recession expectations. In the short term, risk appetite is still under pressure, and the possibility of a "recession trade" continuing remains.
4. Recently, both the US economic and employment high-frequency indicators have shown improvement. The Federal Reserve's model predicts that the quarter-on-quarter annualized GDP growth rate for the third quarter is still above 2%. Although the US economy has slowed down, it has not reached the level of a recession. There are still differences in the market regarding whether the rate cut in September will be 50 basis points or 25 basis points. The key focus is on the August CPI data to be released on September 11, which will provide important guidance for the magnitude of the rate cut at the Fed's interest rate meeting on September 18.
Main text
1. The improvement in job growth in the United States in August was weaker than expected, and the unemployment rate slightly declined but still triggered the "Samaritan's rule".
Overall employment performance: In August, the United States added 0.142 million non-farm jobs, lower than the expected value of 0.16 million. The data for July and June, originally revised from 0.114 million and 0.179 million to 0.089 million and 0.118 million respectively, were further revised down by a total of 0.086 million for the two months. The unemployment rate is 4.2%, in line with expectations and lower than the previous value of 4.3%, marking the second highest level since November 2021. The labor force participation rate is 62.7%, unchanged from the expected value and the previous value. The average weekly hours worked are 34.3 hours, in line with expectations and slightly higher than the previous value of 34.2 hours. The average hourly earnings increased by 0.4% compared to the previous month, higher than the expected value of 0.3%, the previous value of 0.2%, and the 12-month average of 0.3%. It is worth noting that after the unemployment rate triggered the "Samaritan's rule" last month, it still meets the conditions of the "Samaritan's rule" this month (the unemployment rate in the moving average of the past three months is more than 0.5% higher than the lowest point in the previous 12 months).
Industry employment performance: Looking at the unemployment rate performance of various industries in the United States in August, the mining, construction, transportation, and utilities sectors showed the most significant improvement, which were also the three industries with the most severe employment deterioration in July. This is consistent with our previous determination that the hurricanes in early July had a significant impact on these industries. The information and finance industries saw a slight increase in unemployment rates, while other industries experienced little change. The overall labor market still presents the phenomenon of 'layoffs in high-end positions, labor shortages in low-end positions.'
Data interpretation: Overall, the U.S. employment data for August is not considered poor, showing improvement compared to July and confirming the weather disturbances in July. However, the data is not strong enough to dispel market concerns about a U.S. recession, which means the market needs to observe more data to confirm or refute the recession expectations. In the short term, risk aversion remains under pressure, and 'recession trades' may still continue.
After the non-farm payroll report, U.S. stocks and gold fell, while the U.S. Dollar Index rose, with little change in interest rate cut expectations.
Performance of major asset classes: After the non-farm payroll report, U.S. stocks and gold first rose and then fell, while U.S. bond yields and the U.S. Dollar Index first fell and then rose. As of the closing on 9/7, the S&P 500, Nasdaq, and Dow Jones Industrial Average fell by 1.7%, 1.0%, and 2.6% respectively; the 10-year U.S. bond yield increased by 2.1 basis points to 3.71%; the U.S. Dollar Index rose by 0.1% to 101.2; spot gold fell by 0.8% to $2497.1 per ounce.
Interest rate cut expectations: After the non-farm payroll report, there was little change in the implied interest rate cut expectations of interest rate futures. The current market expects the Fed to cut interest rates by 100-125 basis points this year, with a probability of about 30% for a one-time 50 basis point cut in September. If the cut is only 25 basis points in September, the probability of a 50 basis point cut in November is close to 90%.
The current U.S. economy has not shown clear signs of recession, and there is still uncertainty about a direct 50 basis point interest rate cut.
Recession assessment: From a high-frequency indicators perspective, as of the end of August, the unemployment rate of those holding unemployment insurance is still stable at a low level of 1.2%, and initial claims for unemployment benefits have continuously decreased from 0.25 million at the end of July to 0.227 million. The weekly economic index has risen from its low point of 1.5% at the end of July to 2.4%, higher than the average of 1.8% since the beginning of the year. In addition, as of early September, the New York Fed's Nowcast model predicts that the U.S. third-quarter actual GDP growth rate will be 2.6% quarter-on-quarter annualized, while the Atlanta Fed's GDPNow model predicts a result of 2.1%, only slightly lower than the second quarter's 3.0%. Overall, the continuation of the U.S. economic slowdown is a certainty, but the current slowdown is still moderate and far from reaching the level of a recession. We still maintain the previous judgment: 2024 will be a gradual stabilization process for the U.S. economy, with improvement expected in 2025.
Interest rate cut assessment: In the history of the Fed's interest rate cut cycles since 1982, there have been 3 instances of a direct 50 basis point interest rate cut in the first cut, namely in September 2007, January 2001, and November 1987. There have also been cases of a single 50 basis point cut, but they were not the first cut. We have reviewed the economic indicators' performance before the 3 instances of the first direct 50 basis point cut and found that the current situation is at a moderate level, meaning that a 50 basis point or 25 basis point cut are both reasonable. With less than two weeks to go until the 9/18 interest rate meeting, there is still divergence in the market's expectations for the extent of the interest rate cut, and a close watch is needed for the U.S. August CPI data release on 9/11, which will be an important guide for the extent of the interest rate cut. However, it is certain that whether it is a 50 basis point or 25 basis point cut, it will cause a correction in market expectations and lead to asset price fluctuations.
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