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The most important US employment data of the month is expected to be released on Friday amid expectations of a significant decline in job growth in the United States, with a stable unemployment rate and a decline in wage growth.
On the first Friday of each month, US employment data is released, primarily the index of change in non-farm payrolls in the United States, which sets the pace of financial markets throughout the month after shedding light on the US labor market conditions, which draws a clear picture of the performance of the world’s largest economy.
Singnificance of US jobs data is not only drawn from being among the influential indicators determining the health US economy, but it is also from shedding light on one of the two main wings of Fed’s official dual mandate that entails achieving price stability and maximum employment.
Fed and the Labor Market
Jobs data which will be released later on Friday is of increasing importance as it comes just two days after the Fed announced its decision to keep interest rates unchanged, with statements by Jerome Powell, Chairman of the Board of Governors of the Central Bank, showing a clear inclination to cut interest rates in September meeting.
Investors are also paying more attention to these statements, as Powell gave important remarks on labor market in his speech, during the press conference held last Wednesday following the announcement of the Fed’s decisions, and shed light on its conditions in relation to monetary policy.
Powell said, “US labor market conditions show signs of gradually returning to normalisation” ruling out the possibility that “labor market is currently among the sources of inflationary pressures”.
The Federal Reserve kept interest rates unchanged at its meeting on July 11-12, avoiding a cut amid its ongoing battle against inflation, with the central bank and its chairman expressing satisfaction with the results of the monetary authorities’ efforts to reduce inflation towards the official target of 2.00%.
As a result, interest rate is still in range of 5.25% – 5.50%, the rate adopted by the central bank since last July, which is the highest in 23 years.
Scenarios of jobs data
We expect two scenarios for US jobs data; one is positive while the other indicates negative possibilities for the most important US data of the month. These scenarios are based on a number of preliminary employment indicators through which we can draw a clear picture of what US labor market might be performing.
Positive Scenario
The positive scenario of US jobs data is supported by some preliminary indicators referred to below;
Challenger job cuts report showed a significant decrease in layoffs in July, with 25,885 jobs cut compared to the previous month’s 48,786.
Job Openings and Labor Turnover Survey (JOLTS) also indicated a decline in job vacancies to 8.184 million in June, down from 8.230 million the month before. However, even with this decrease, the number of job openings still exceeded market expectations of 8.030 million.
Negative Scenario
The index of change in non-farm payrolls in the United States issued by the Automatic Data Processing (ADP) declined to 122,000 jobs in July compared to the previous reading of 155,000 jobs.
ADP National Employment Report showed a decline in private sector job growth to 122,000 in July, below the expected 150,000. This is a slowdown from the previous month’s 155,000.
ISM Manufacturing and Services Purchasing Managers’ Indices (PMIs) both reported declines in their employment components. This suggests that businesses in both manufacturing and services sectors are hiring at a slower pace.
The University of Michigan’s Consumer Sentiment Index decreased, indicating that consumers are less optimistic about the economy. This could potentially lead to reduced spending.
Initial jobless claims also rose, suggesting a slight uptick in layoffs. The four-week moving average of initial claims believe also increased, which is generally seen as a more reliable indicator of labor market trends.
These indicators collectively paint a picture of a softening labor market. If this trend continues, it could lead the Federal Reserve to that it has made sufficient progress in taming inflation, potentially easing monetary policy. However, if job growth unexpectedly accelerates, it could strengthen the dollar and put downward pressure on stocks and gold.
