August Non-Farm Payrolls: A Closer Look

The U.S. Bureau of Labor Statistics will release the August Non-Farm Payrolls report at 8:30 PM Beijing time on Friday. Economists generally predict that U.S. employer hiring intentions will remain insufficient, and the unemployment rate may rise to its highest level in nearly four years, further highlighting the sluggish labor market. According to market expectations, 75,000 non-farm jobs are expected to be added in August, with an unemployment rate of 4.3% projected. If this is met, it would be the fourth consecutive month that non-farm job growth has been below 100,000, and also the weakest consecutive performance since the outbreak of the COVID-19 pandemic in 2020.

The Report's Significance and Impact on the Fed

The importance of this report cannot be overstated. It not only relates to the judgment of the overall direction of the U.S. economy, but will also directly affect the Federal Reserve's decision to cut interest rates at the September meeting. The market widely expects the Fed to cut interest rates by 25 basis points in September, but if employment recovers and inflation worsens, this expectation may be broken. Michael T. Gapen, chief economist at Morgan Stanley, points out: "If 225,000 jobs are added in August, it may dispel the Fed's concerns about the labor market, thereby prompting policymakers to maintain higher interest rate levels." However, he also cautioned that such a growth rate would be the fastest since December 2024.

Prior Value Revision: A Key Point to Watch

Another highlight of the current non-farm payrolls report is whether the prior values will be revised down again. The July non-farm payrolls were unexpectedly weak, and at the same time, the May and June data were significantly revised, which greatly angered U.S. President Trump and led to the dismissal of the director of the Bureau of Labor Statistics. He claimed that the data was "manipulated" to embarrass him. Some analysts believe that the July non-farm payrolls data and prior revisions mean that the U.S. economy has begun to weaken. The market will initially focus on comparing August data with the initial values for July, but the focus will quickly shift to further revisions of the June and July data.

Future Expectations for Monetary Policy

Major financial institutions warn that U.S. non-farm payrolls data may be significantly overestimated, and this revision may reduce jobs by 550,000 to 800,000 at once. The main reason for the overestimation of the data is the distortion of the birth-death model, as well as the overestimation of the labor force population due to the reduction of illegal immigrants. "This revision will have a significant impact on market confidence and policy prospects, and may prompt the Federal Reserve to choose a large interest rate cut of 50 basis points again," analysts said.

Labor Market Shows Signs of Slowdown

The U.S. labor market is currently showing signs of fatigue. Federal Reserve officials are facing the dilemma of the dual goals of reducing inflation and maintaining employment. Chairman Powell indicated at the Jackson Hole meeting that the labor market is more worrying than it was at the beginning of the year. Data released this week shows that the labor market is not only cooling, but almost stagnant: hiring has stagnated, employees lack mobility, and layoffs remain at low levels. Structurally, job growth is increasingly dependent on a few industries such as healthcare, leisure, and hospitality, but even the addition of new jobs in these areas is showing signs of slowing.