Xinhua Finance, Beijing, September 6 (Wang Xiaowei) - Data from the U.S. Bureau of Labor Statistics shows that the number of non-farm new jobs in June was revised from 179,000 to 118,000; the number of non-farm new jobs in July was revised from 114,000 to 89,000. After the revision, the combined number of new jobs in June and July is 86,000 less than before the revision. The U.S. added 142,000 non-farm jobs in August, slightly lower than expected, but an improvement from the July data. The previous number was revised down from 114,000 to 89,000. The unemployment rate fell to 4.2%, in line with expectations. After the release of U.S. non-farm and other data, U.S. Treasury bonds rose and the U.S. dollar index fell.
The latest non-farm report did not clearly eliminate the uncertainty of whether Federal Reserve officials would cut interest rates by a more traditional 25 basis points or by a larger 50 basis points.
The number of new jobs in June was revised down by 61,000, from 179,000 to 118,000, and the July data was revised down by 25,000, from 114,000 to 89,000.
After the revision, the total number of jobs in June and July was 86,000 less than previously reported.
This is also the fourth consecutive revision of non-farm new job numbers, with six out of the last seven being revised down.
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The employment growth in August was mainly driven by hiring in the healthcare and social assistance industries, with construction and government employment also showing growth. However, manufacturing employment has significantly deteriorated, with 24,000 jobs lost in August, compared to an expected loss of 2,000.
The frequent revisions of recent non-farm data have sparked discussions about the accuracy of the data. Some analysts believe that the revisions of non-farm data may be related to the recovery speed of small businesses, which are more sensitive to changes in economic conditions and may add jobs faster during economic expansions, and reduce jobs more quickly during economic recessions or when the risk of recession increases.
Analyst Sebastian Boyd said that the market believes that the non-farm data has cleared the way for a significant interest rate cut. After the release of the employment data, the yield on two-year U.S. Treasury bonds initially jumped, and the 2y/10y curve flattened, but soon turned downward. After the non-farm employment increase was lower than expected, the two-year yield fell to its lowest point since August 5. The revision of 86,000 jobs in the previous two months means that the labor market is much weaker than imagined.
Analyst Cameron Crise said that the employment data, at first glance, is very close to the apparent consensus, despite the revision of the previous numbers. The unemployment rate fell to 4.2%, consistent with the median forecast, but indicates a reversal of the recent upward trend, which is somewhat reassuring, especially when the participation rate remains unchanged and the number of employed people in households increased by 168,000, close to the increase in non-farm employment (142,000). It should be noted that the data for the previous months was revised down by 86,000, so from this perspective, this report is slightly weak. It is hard to be a decisive factor in the decision to cut interest rates by 25 or 50 basis points.
A senior portfolio manager at BlackRock said that the market risk lies in that if the Federal Reserve's easing this month is 50 basis points, it may imply concern about the economy, rather than reassuringly suggesting that policymakers are taking timely action to avoid a recession.A report from Deutsche Bank indicates that over the past 15 years, the market expectations prior to the Federal Reserve's quiet period have typically seen a difference of only 3 basis points between the interest rate expectations implied by the prices of interest rate swap contracts and the final interest rate decisions. If the Federal Reserve decides to lower interest rates by 25 basis points at a particular meeting, the range for rate cuts priced by the interest rate market before the quiet period generally falls between 22 and 28 basis points.
Deutsche Bank analysts suggest that the current interest rate swap market has factored in a rate cut of 34 basis points. If the market follows the previous pattern and needs to make a more accurate judgment on the Federal Reserve's interest rate decision before the quiet period, then the implied rate cut in the swap prices may narrow to below 28 basis points tonight (indicating a 25 basis point rate cut in September), or further expand to above 47 basis points (indicating a 50 basis point rate cut in September), potentially both to be determined by the non-farm payroll data.
Informa Global Markets notes that while the non-farm employment increase fell short of expectations, the unemployment rate improved, and both year-over-year and month-over-month wage growth were stronger than anticipated. Following the data release, the US dollar index generally weakened, and US Treasury yields fell below the 3.7% threshold. However, after initial digestion, we do not believe these figures will trigger recession concerns, and we still think it is possible that the Federal Reserve may lower rates by 25 or 50 basis points on September 18th. Although the labor market is clearly on a softening trajectory, market attention may quickly shift to next week's CPI. The current question is whether more than 100 basis points of easing for the remaining three FOMC meetings in 2024 is overpriced.
Holger Schmieding, Chief Economist at Berenberg Bank, stated that the report further confirms the weakness in the US labor market, which could increase the likelihood of the Federal Reserve adopting more aggressive monetary policy measures.
Barclays strategists pointed out that although the market was prepared for weak non-farm data, the actual figures falling short of expectations could trigger further market volatility. They believe that if employment growth remains sluggish, concerns about an economic recession may intensify in the market.
"Fed mouthpiece" Nick Timiraos stated that the non-farm employment report could potentially provide a clear signal regarding the magnitude of the Federal Reserve's first rate cut, whether it be 25 or 50 basis points, with market pricing immediately rising to 90%. However, this non-farm employment report did not adequately resolve this issue, and the market's pricing for a rate cut of either 25 or 50 basis points is currently a "fifty-fifty" split. The overall non-farm data is not bad enough to shift the baseline expectation to a 50 basis point rate cut, but considering the revised data, it is not yet convincing enough to completely dispel speculation of a more significant rate cut.
A senior macro analyst at Shenwan Hongyuan Securities stated that from the perspective of high-frequency data, there is still a possibility for the US employment data to stabilize in the short term. However, the US job market is indeed in a general weakening trend, with the main headwinds being the depletion of household savings and the suppression of small and medium-sized enterprises' operations and hiring needs due to high interest rates.
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