U.S. August Nonfarm Payrolls: Rises Mildly, with Uncertainty Over the Size of Rate Cut

Economic

Data Interpretation

Summary:

On September 6, the U.S. Bureau of Labor Statistics (BLS) released data showing that nonfarm payrolls added 142,000 jobs in August 2024, below the expected 160,000. The unemployment rate fell back to 4.2 percent, in line with the market's expectations, hitting a new low since June.

On September 6, ET, the U.S. BLS released the nonfarm payrolls report for August:

The U.S. nonfarm payrolls for August came in at 142,000, lower than the expected 160,000, while the previous reading was 89,000 (revised).

The U.S. unemployment rate in August was 4.2 percent, while the expected rate was 4.2 percent, and the previous rate was 4.3 percent.

Employment increased in the private sector and government agencies. The services sector accounted for 75.7 percent of the job growth, mainly driven by the education and healthcare sectors, which contributed to 47,000 jobs. Specifically, health care and social assistance added 44,000 (previously 59,000), while the business services sector turned positive at 8,000 (previously -13,000). The figure for the leisure and hospitality industry rebounded to 46,000 (previously 24,000). Manufacturing, however, saw a notable reduction of 24,000 jobs (previously 6,000). Government agencies added 24,000 (previously 15,000).

The unemployment rate fell to 4.2 percent and the labor force participation rate stayed at 62.7 percent. The core labor force showed a strong willingness to work, but the labor participation rate among the youth remained relatively weak. Hourly wage growth rebounded on a MoM basis and average weekly hours worked also rose. Hourly wage grew by 0.4 percent MoM (previously 0.2 percent) and by 3.8 percent YoY (previously 3.6 percent). Average weekly hours worked in the private sector increased to 34.3 hours in August (previously 34.2 hours).

The nonfarm payrolls data fell short of expectations in August, but the unemployment rate improved, with the hourly wage performing better than expected MoM and YoY. It shows that the labor market is indeed weakening, but it also indicates that the labor market has not experienced a significant non-linear deterioration, partially dispelling the market's concerns about an impending recession in the U.S. economy. The job market showed resilience to the softening trend, so the market cannot confirm whether a 25-bps or a 50-bps rate cut will be implemented at the end of September. Next, the focus will be on this week's CPI data.

August Nonfarm Payrolls Report

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Kevin Du

The average usage of electricity per household climbed 9 percent in August from a year earlier to come to 363 kilowatt-hours (kWh), which is likely to lead to a 13 percent on-year increase in the rates, or 7,520 won ($3.88) on average to 63,610 won, according to Korea Electric Power Corp (KEPCO).

The calculation is based on preliminary data, and the amount will be fixed at the end of this month, it added.

The sharper growth than the usage came as KEPCO currently applies the tiered rate system for residential power usage, where households using more electricity are charged at a higher rate.

Some 76 percent of total households in South Korea are expected to pay more this year than last year, KEPCO said.

The country's average daily maximum power demand reached a record high of 87.8 gigawatts in August by rising 6.1 percent on-year.

The number of heat wave days, or days when the daily high was 33 degrees Celsius or higher, reached 16 in August, the second-highest since 1973, when the data was first recorded.

The number of tropical nights, where nighttime temperatures remained above 25 C from 6:01 p.m. to 9 a.m. the following day, reached 11.3 days in August, marking the first time this figure has reached double digits, government data showed.

Source: Koreatimes

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[Quick Facts]

1. U.S. August nonfarm payrolls pick up, with unemployment down.

2. August nonfarm payrolls offer little clarity on future path after Sep cut.

3. Summers: Weak employment makes a 50bp Fed rate cut more possible.

4. Fed's Williams says time has arrived to start rate cuts.

5. Fed's Waller is open to larger rate cuts.

6. Fed's Goolsbee says data justify multiple rate cuts.

7. Nikkei 225 index plummets on stronger yen and weak U.S. jobs data.

8. Hezbollah carries out two rounds of strikes on northern Israel.

9. ECB expected to cut rates next week and make further easing in Dec.

[News Details]

U.S. August nonfarm payrolls pick up, with unemployment down

Data from the U.S. Bureau of Labor Statistics last Friday showed that U.S. nonfarm payrolls increased by 142,000 in August, lower than the expected 161,000. The figures for the previous two months were revised downward. The unemployment rate fell to 4.2%, the first decline in five months, reflecting a reversal in temporary layoffs. Average hourly wages grew by 0.4%. The job growth was mainly driven by the healthcare and social assistance sector. The labor market continues to cool, showing signs of weakening resilience, though it has not experienced a sharp nonlinear decline. Concerns about a potential recession have risen, and the debate over the overall size of future rate cuts continues.

August nonfarm payrolls offer little clarity on future path after Sep cut

U.S. August nonfarm payrolls data are neutral, making the Fed's policy path in the fall of this year full of uncertainty. A 25bp rate cut in September is almost a foregone conclusion, but after that, the situation has become more complex.

The ambiguous nonfarm payrolls report won't change the Fed's decision to start cutting rates at the September meeting. However, it does not provide much clarity for what will happen next - neither indicating that a soft landing for the economy is on the cards, nor that the rapid deterioration of the job market requires the Fed to take active countermeasures.

Two more jobs reports will be released before the November meeting. The June dot plot predicted only one rate cut in 2024, but the September dot plot could show more cuts, though not necessarily in line with market expectations. The employment, inflation and growth data in October will be key in determining the next action.

Summers: Weak employment makes a 50bp Fed rate cut more possible

Former Treasury Secretary Lawrence H. Summers said that while the August nonfarm payrolls report was not very bad, it did make it more difficult to predict how much the Federal Reserve might cut interest rates this month. "The numbers certainly didn't show hugely pronounced weakness, but if you were concerned by the recent trend in the statistics, they certainly didn't give you a clean bill of health for the economy," Summers said in an interview.

"It's looking like a closer call for 25 versus 50 in September than was my guess a month or two ago," Summers said. Ultimately, the size of the Fed's first move isn't crucial, and officials will keep tabs on how the economic outlook unfolds and adjust policy to suit. "If the economy has substantial weakening, they're going to cut rates a lot, but if the economy doesn't have really substantial weakening, they'll probably cut rates at a pace of about one cut a meeting," Summers said.

Fed's Williams says time has arrived to start rate cuts

New York Fed President John Williams said last Friday that the Federal Reserve has made significant progress in achieving its dual mandate of maintaining price stability and full employment. The risks to achieving these two goals are now in balance. The labor market is unlikely to be a source of future price pressures and inflation is moving toward the 2% target. Therefore, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by cutting rates.

Fed's Waller is open to larger rate cuts

Federal Reserve Governor Christopher Waller on Friday said that the U.S. labor market is continuing to soften but not deteriorate. He does not believe the economy is in a recession or necessarily headed for one soon. Given the continued progress in inflation, the Federal Reserve should reduce the target range for the federal funds rate at the next meeting. Waller is open to the size and speed of rate cuts. If the data supports cuts at consecutive meetings, then he believes it will be appropriate to cut at consecutive meetings, and if the data suggests the need for larger cuts, then he will support that as well.

Fed's Goolsbee says data justify multiple rate cuts

The longer-run trends in labor-market and inflation data justify the Federal Reserve easing interest-rate policy soon, and then steadily over the next year, Chicago Fed President Austan Goolsbee said last Friday. Monthly inflation data has been low, fitting within the tight monetary policy stance. If this level of tightness is maintained, the likelihood of a recession may increase. It is not the size of rate cuts that matters, but the future policy path. And there is a broad consensus within the Fed that multiple rate cuts will occur.

Nikkei 225 index plummets on stronger yen and weak U.S. jobs data

The Nikkei 225 fell as much as 3% during the session as a stronger yen last week weighed on exporters' earnings prospects and disappointing U.S. nonfarm payrolls data raised concerns about the health of the U.S. economy.

"Global investors may be hedging their bets and cashing out," said Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Laboratory, "They may have decided that concerns about the U.S. economy and the likelihood of a significant rate cut cannot be ignored in light of the jobs report." Masahiro Yamaguchi, senior market analyst at Japan's Sumitomo Mitsui Trust Bank, said the revised Japanese GDP slightly lowered expectations for economic growth, but otherwise is unlikely to have much of an impact on stocks. It won't change the direction of the Japanese economy.

Hezbollah carries out two rounds of strikes on northern Israel

Lebanon's Hezbollah said in two consecutive statements via social media in the early hours of Sep. 8 that it carried out two rounds of strikes against Shemona in northern Israel. In the first round of strikes, it used "Falaq" rockets, and in the second round of strikes, a barrage of rockets was launched. Both statements pointed out that the strikes by Hezbollah were in response to the attacks carried out by the Israeli army in southern Lebanon, especially in the town of Froun in southern Lebanon, which killed several civil defense personnel.

ECB expected to cut rates next week and make further easing in Dec.

The European Central Bank (ECB) is expected to cut interest rates next Thursday, serving as a prelude to the Federal Reserve's rate cuts. The global monetary policy cycle is tilting towards more synchronized easing. The core issue at this month's meeting is whether these rate cuts will signal the start of a deeper easing cycle, which could not only remove constraints on major economies but also potentially begin to stimulate economic growth.

Institutions predict that the ECB will cut rates by another 25 basis points in December. However, higher wage growth and the stickiness of inflation in the services sector may lead the Governing Council to avoid making an early commitment to this action. It is reported that Governing Council members are more inclined to adjust rates when the latest quarterly forecasts are available, making a rate cut in December more likely than action in October.

[Today's Focus]

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IC Markets

Economic

US stock markets slumped on Friday after employment data slightly missed expectations. Investors had been anticipating a strong possibility of a 50-basis point interest rate cut from the Federal Reserve next week. However, the market is now leaning towards a more cautious 25-point reduction to initiate the cycle. The Dow dropped by 1.01%, the S&P 500 by 1.73%, but the Nasdaq bore the brunt of the selling, falling by 2.55% on the day.

US Treasury yields continued their downward trajectory, with the 2-year note losing 10.6 basis points to settle at 3.646%, while the 10-year yield fell by 2.8 basis points to 3.708%. The dollar strengthened, gaining 0.2% on the index, as currencies reacted sharply to the data release. Oil prices took another hit, with Brent crude dropping 2.24% to close at $71.06, and WTI falling 2.14% to finish the week at $67.67 a barrel. Gold also dipped amid the stronger dollar, losing 0.77% to settle below the key $2,500 mark once again, at $2,497.41 an ounce.

Market Eyes Further Rate Cuts from the Fed

In the near term, Friday’s employment data has been interpreted as the worst possible outcome for risk assets in the US, pointing towards a slowing economy but likely prompting only a 25-basis point cut from the Fed. Some equity investors had been hoping for a 50-basis point reduction to stimulate the market more aggressively next week. However, the modest drop in the data suggests the FOMC may choose the more conservative option.

Futures markets now indicate a 73% probability of a 25-basis point cut, up from the near 50/50 chance expected last week. In the longer term, the increasingly weak labour numbers have driven expectations of further rate cuts, with 251 basis points worth of reductions now priced in by the end of 2025, adding further pressure on US Treasury yields. There are still 10 days to go before the Fed’s decision, with a key CPI report yet to be released, so traders anticipate continued volatility in the rates markets in the days ahead.

Markets Set to Start the Week on a Negative Note

Asian markets are expected to open on a weak footing this morning, following Wall Street’s sharp decline on Friday after the release of the US employment data. Investors will be closely watching for macroeconomic indicators during today’s session, including the release of CPI and PPI figures from China. Chinese stocks ended at a seven-month low on Friday, and investors are hoping for positive news from the data to spur a recovery. The forecast is for a 0.7% increase in CPI, and traders expect volatility around the announcement.

With very little else on the economic calendar for the rest of the day, trading conditions should be smoother, although some investors are anticipating further downside potential as the market continues to adjust to reduced expectations of Fed stimulus compared to last week.

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Owen Li

Economic

Japan’s gross domestic product (GDP) grew at an annualised pace of 2.9% in the three months through June compared to the previous quarter, the Cabinet Office said on Monday. The result compared with a preliminary estimate of 3.1%. Private consumption and capital investment were both revised a tad lower.

In non-inflation adjusted terms, the economy advanced 1.8% from the previous quarter, and the data reaffirmed that the total value of the economy exceeded ¥600 trillion (US$4.2 trillion or RM18.26 trillion) for the first time on record, a goal set a decade ago by policymakers in Japan.

While the key domestic demand components were slightly downgraded, the overall results broadly support BOJ governor Kazuo Ueda’s view that a gradual recovery will continue. Almost no economists expect the central bank to adjust its benchmark rate when the policy board meets later this month, but many BOJ watchers forecast a rate move by January.

Monday’s data confirmed that consumer spending grew 0.9% from the previous quarter in a sign of a recovery after it fell for four consecutive quarters through the end of March.

The revisions were largely within the margin for error, and don’t change the overall perception that the economy was in recovery last quarter, according to Takeshi Minami, the chief economist of Norinchukin Research Institute.

“Today’s data won’t really affect the BOJ’s policy stance,” Minami said. “They are unlikely to raise rates this month given unstable financial markets, but they have made it clear that a rate hike is in their mind, so I think another hike within the year is possible.”

Still, some economists are sceptical about the resilience of consumer demand as households contend with persistent inflation for the first time in a generation. The key gauge of consumer inflation has stayed at or above the BOJ’s 2% target for 28 months, with August data expected to extend that streak. While real wages have finally stopped falling after more than two years, consumer spending has stayed below pre-pandemic levels.

The rebound in the economy was widely expected by economists after GDP contracted in the first three months of the year. Manufacturing during the period was undermined by a large earthquake northwest of Tokyo on New Year’s Day and disruptions to auto output as a safety certification scandal forced some companies to temporarily shutter factory lines.

Concerns over cost of living and consumer demand will be on the minds of politicians vying to become Japan’s next prime minister. The ruling Liberal Democratic Party’s (LDP) Sept 27 leadership election is all but certain to determine Prime Minister Fumio Kishida’s successor due to the party’s dominance in Parliament.

Toshimitsu Motegi, currently the LDP secretary general and one of several candidates running in the party race, said last week he will compile an economic package if he wins the vote. Shinjiro Koizumi, one of the front runners in the leadership race, has also pledged to unveil a package should he become the prime minister.

With the likelihood that demand from China and the US may cool as economic growth slows, Japan’s consumer spending will be critical going forward, Minami said.

“Consumer spending may get stronger as wages are starting to rise,” he said. “At the same time, a recent rise in prices for rice and food may keep households in a saving mode.”

Japan’s economy is expected to continue expanding this quarter, with economists looking for an annualised growth rate of 1.7%, according to the median estimate in a survey by Bloomberg last month. The pace would be well above the 1% that the central bank considers to be the top end of a range for the nation’s potential growth rate. That indicates that economists expect inflationary pressure to persist as the BOJ keeps policy rates at the lowest level among major peers even after two rate hikes earlier this year.

The central bank will conclude its next policy meeting on Sept 20, with the focus likely to fall on the prospects of another rate increase in October or December after the latest hike to 0.25% in July.

Source: Theedgemarkets

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Samantha Luan

Cryptocurrency

Financial advisor Suze Orman, a best-selling author and host of the Women & Money podcast, recently discussed why everyone should own Bitcoin and how the next generation of investors could define the future of cryptocurrency.

Orman’s comments came during a recent interview with her former employer, CNBC. Her segment, the Suze Orman Show, ran from 2002 through 2016 and was among the network’s most highly rated finance-oriented programs.

During the interview, Orman bucked the trend set by her contemporaries in the financial advisory industry and recommended that everyone invest in Bitcoin.

Per the CNBC interview:

“As younger people make more money and mature, [Bitcoin] will be one of their investments of choice, and that will cause it to go up.”

Semi-bullish

While her bullishness extends to having Bitcoin in her own portfolio, she did show some trepidation, stating that she’s only invested via Bitcoin ETFs.

“I don’t think it will ever be a currency or a store of value,” Orman lamented, “but because the younger generation has a fascination with it — and you see the energy — a whole lot of people having interest in it,” she added, “eventually it could very well catch fire.”

Number of identify-verified cryptoasset holders (in millions) from 2016 through June 2024. Source: Statista

She went on to explain that she feels better owning an ETF “because I would never want to see an FTX happen again.” Orman also added that she’d “never understand how the wallets work and how if you lose your passcode, you never get it again.”

Ultimately, however, Orman’s message was clear. As she told CNBC, “Everybody should absolutely have exposure to bitcoin.” She does however caution that holders “gotta be OK with losing that money,” and advises that traders only invest as much as they can afford.

Source: COINTELEGRAPH

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Thomas

Stocks

For the fourth consecutive week, foreign investors have purchased equities in Malaysia, with net purchases recorded every day last week, according to MIDF Research.

Total net purchases by foreign investors amounted to RM798.3 million. The largest inflow occurred last Wednesday, totalling RM286.0 million, coinciding with Bank Negara Malaysia's decision to maintain the overnight policy rate at 3% as widely expected.

The decision, following a two-day meeting of the Monetary Policy Committee, was based on ongoing economic growth and stable inflation. This announcement likely influenced the significant inflow of foreign investment last Wednesday.

Among the sectors, financial services saw the highest net foreign inflows, amounting to RM743.2 million last week. Utilities followed with RM405.1 million, while healthcare recorded RM113.6 million in net foreign inflows.

Conversely, the sectors with the highest net foreign outflows were consumer products and services at RM193.8 million, industrial products and services at RM116.0 million, and technology at RM68.4 million.

Local institutions, on the other hand, net sold equities for the fourth week in a row, totaling RM960.5 million. In contrast, local retailers were net buyers, with total net purchases of RM162.2 million.

The average daily trading volume experienced declines across the board. Local retailers saw a decrease of 14.6%, local institutions 18.3%, and foreign investors 35.8%.

Despite these declines, the sustained interest from foreign investors highlighted confidence in Malaysia's economic stability and growth prospects, said MIDF Research.