August Non-Farm Payroll Report: Will it Trigger a Fed Rate Cut?

August Non-Farm Payroll Report: An Overview

The world is awaiting the release of the August non-farm payroll report from the US Bureau of Labor Statistics. Economists widely anticipate the report to show a slowdown in hiring and a potential rise in the unemployment rate to its highest level in nearly four years, highlighting a cooling labor market. The consensus forecast is for the addition of around 75,000 non-farm jobs in August, with the unemployment rate expected to tick up to 4.3%. If these expectations materialize, it would mark the fourth consecutive month of non-farm job growth below 100,000, and the weakest streak since the COVID-19 pandemic struck in 2020.

The Report's Significance and Potential Impact

The importance of this report cannot be overstated. It not only informs our assessment of the overall trajectory of the US economy but will also directly influence the Federal Reserve's decision on whether to cut interest rates at its September meeting. The market widely anticipates the Fed to cut rates by 25 basis points in September, but this expectation could be challenged if the job market rebounds and inflation worsens. Michael T. Gapen, chief US economist at Morgan Stanley, points out that "if 225,000 jobs are added in August, that might assuage the Fed's concerns about the labor market, prompting policymakers to maintain higher interest rate levels." However, he also cautions that such growth would be the fastest since December 2024.

Prior Revisions: A Key Focus

Another key aspect to watch in this report is whether the prior values will be revised downwards again. July's report was unexpectedly weak, and May and June data were significantly revised, which angered former US President Donald Trump and led to the dismissal of the Bureau of Labor Statistics chief. He claimed the data was being "manipulated" to embarrass him. Furthermore, the US Department of Labor will release a non-farm annual benchmark revision on Tuesday, September 9th. Goldman Sachs and Standard Chartered warn that US non-farm payroll data may be significantly overstated, and this revision could slash between 550,000 and 800,000 jobs in one go.

Impact of the Report on Gold and the Dollar

The market's sensitivity to non-farm payroll data has been particularly heightened this week, with gold prices hitting new highs driven by rising rate cut expectations, tariff uncertainty, concerns about the Fed's independence, and geopolitical risks. Analysts at Monex Europe caution that if non-farm payroll data is better than expected, the dollar could gain support, and the focus will shift back to inflation risks, and the Fed may not be able to implement any interest rate cuts at all this year, driving the dollar higher. Conversely, weak non-farm payrolls will continue to support gold. Lee Hardman, an analyst at MUFG Bank, says that "if the US non-farm payroll data released on Friday is much weaker than expected, the dollar may fall further. Another jobs report weaker than expected will reinforce market expectations, prompting the Fed to resume cutting interest rates at the September meeting, perhaps even cutting interest rates by 50 basis points at once."