If we talk about the most unpredictable economic indicators in the US market this year, then non farm data is enough to make it onto the list
In the past few months, there has been a significant discrepancy between the actual performance of non-agricultural data and the expectations of economists, which has been repeated multiple times - even the situation where market forecasts differ from actual published values by 50000 to almost 100000 has become a common occurrence.
Moreover, when the market expects that non-agricultural data may perform lukewarm or lukewarm, non-agricultural data often directly explodes (non-agricultural data from January to March and May); But when the market raises its expectations, non-agricultural data will explode once again
The direct consequence of this is that the market fluctuations on non farm nights in recent months are often very severe. However, the duration of the market, or the specific impact of the data, often does not truly continue into the next week (usually released on the first Friday of each month).
This has also led many industry insiders to hold a skeptical attitude towards the authenticity of US non farm employment data at present. The well-known financial blog website zerohedge has repeatedly criticized in the past few months that non-farm data may significantly overestimate the actual situation of the US job market, and the US government is creating "fake data"
Richard Moody, Chief Economist of Regions Financial, also pointed out that government employment surveys have been less accurate since the outbreak of the pandemic. The initial estimate of new employment opportunities in non-agricultural reports is often too high, and subsequent revisions often show that there are actually fewer job opportunities created. Moody said, "We believe that the job market is not as vibrant as the overall employment growth data suggests."
And tonight, the first non farm night of the second half of the year will come again.
What kind of non farm night will people celebrate this time? Will the data performance still be full of surprises?
June Non farm Outlook: What are the market expectations for this time?
According to the schedule, the US Department of Labor is scheduled to release the June non farm payroll report at 20:30 Beijing time tonight. According to the median expectations compiled by industry media, it is expected that the number of non farm workers will increase by 190000 in June, and the unemployment rate will remain unchanged from the previous month at 4%. In May, the US job market added 27.2 jobs, which significantly exceeded market expectations, but the unemployment rate rose to 4%, in stark contrast to the excellent performance of major non-agricultural indicators.
The following is the latest median forecast from Wall Street for non farm main indicators and key sub indicators compared to last month:
The non farm employment population in the United States is expected to increase by 190000 after the June quarter adjustment, compared to the previous value of 272000;
The unemployment rate in the United States is expected to be 4% in June, compared to the previous value of 4%;
The employment participation rate in the United States is expected to be 62.6% in June, compared to the previous value of 62.5%;
The average weekly working hours in the United States in June were 34.3 hours, compared to the previous value of 34.3 hours;
The average hourly wage in June in the United States is expected to increase by 3.90% year-on-year, compared to the previous value of 4.10%;
The average hourly wage in the United States is expected to increase by 0.30% month on month in June, compared to the previous value of 0.40%.
Overall, due to the high difficulty of current non-agricultural forecasts, investment banking institutions have significant differences in predicting tonight's non-agricultural data. Some optimistic investment bankers predict that tonight's non farm payroll data is expected to reach over 230000, while pessimistic institutions such as Goldman Sachs believe that the new non farm payroll employment may only be around 140000-160000.
Of course, compared to the hot data of 272000 people in May, industry insiders generally believe that the phenomenon of the US labor market hiring boom in June will subside. Bank of America economist Michael Gapen inferred in a weekly research report that this non farm report is likely to show a "cooling but not freezing" labor market.
In fact, even if the number of new jobs added in June slows down as expected by the current market, historically, this growth rate is still relatively good. In the first ten years of the COVID-19 epidemic, the US economy added 183000 new jobs on average every month.
It is worth mentioning that several sets of US employment data released earlier this week, prior to tonight's non farm payroll data release, have generally performed poorly.
For example, the ADP report, also known as "small non farm", released on Wednesday showed that the employment growth in the US private sector was the smallest in five months; The number of people who continue to apply for unemployment benefits announced on the same day has risen to the highest level since November 2021; The employment index in the ISM service industry index for June was also negative for the fifth consecutive month
All these signs indicate that demand in the US labor market is starting to slow down, and unemployed individuals need more time to find new jobs. As a result, the US dollar index and US bond yields also experienced a significant drop before the Independence Day holiday in New York on Wednesday.
May indicators such as unemployment rate be more critical in the long run?
For many investors, tonight, like all previous non farm nights, still needs to face the question of which of the many sets of employment market indicators released tonight will be more important?
In terms of its impact on the domestic market, based on the experiences of non farm workers in the past few months, the most destructive indicator is undoubtedly still the main indicator of the non farm report - that is, how many new non farm workers were added in June. In the past few months of non farm nights, the surprising and significantly different performance of non farm data from expectations has triggered a short-term market trend.
It's not surprising that market participants will ultimately question the authenticity of the number of non farm employment. From a composition perspective, the monthly employment report of the US Department of Labor is based on two surveys, which currently emit conflicting information.
One of them is a survey on the number of salaried employers (CES, which is currently seen as non-agricultural data), which shows that there have been 2.8 million job increases in the past year and 248000 job increases per month this year. The second survey focuses on households (CPS, used to calculate unemployment rates), and with the same definition of job positions, it shows that there has only been an increase of 216000 job positions in the past year.
Many industry insiders suggest that the CES survey may have overestimated employment growth because it overestimated the jobs created by new businesses and underestimated the jobs lost by closed businesses. Of course, CPS surveys are not entirely accurate, and if household surveys do not correctly calculate the increase in immigrant numbers, it may underestimate employment opportunities. Ultimately, the actual number of recruits is likely to fall between these two indicators. In fact, state level data, including unemployment benefits, suggests that the monthly recruitment in the past year may be closer to 200000 job positions.
This is actually one of the reasons why people often see that non-agricultural data is hot at the beginning of its release, but often experiences downward revisions afterwards.
And this also indicates that although the intraday market is likely to fluctuate in the short term along with non farm property indicators, the seemingly "increasingly false" non farm property indicators may not be crucial in terms of their guiding significance for the US economy or their impact on the Federal Reserve's monetary policy. Last month was actually a good proof - despite the non farm boom, it was almost the only outstanding indicator of the US economy that month. Due to a series of economic data that fell short of expectations, the expectation of the Federal Reserve cutting interest rates continued to heat up, and US bond yields fell sharply.
In contrast, the unemployment rate may be particularly noteworthy for long-term investors or Federal Reserve observers. Nick Bunker, head of economic research at the Independent Hiring Lab, said, "At the time of this report's release, the uncertainty of the economic situation has increased compared to previous months. Specifically, I am more concerned with the unemployment rate, which has been slowly rising."
Among the numerous sub data, the analysis of the Bank of France and Pakistan also believes that the importance of unemployment rate will surpass the number of newly added non-agricultural population. The bank pointed out that technically speaking, a rise in the US unemployment rate to 4.2% would trigger the Sam's Law. According to Sam's Law, when the three-month moving average of the unemployment rate rises by 0.5 percentage points or more compared to the low point of the previous 12 months, the US economy will enter a recession.
Ernie Tedeschi, a former economist in the Biden administration and currently working at Yale University's Budget Laboratory, said, "This time may be really different. The unemployment rate may be rising because it is approaching natural unemployment." Similarly, "Although the labor market is not deteriorating rapidly, it is not as strong as it appears on paper, and the Federal Reserve needs to take this seriously."
Is tonight's data expected to affect the Federal Reserve's interest rate cut window?
Finally, the performance of tonight's series of employment report indicators clearly cannot be ignored by investors for their impact on the Federal Reserve's decisions.
Currently, Powell and other Federal Reserve officials still overall believe that the US labor market is cooling at a rate acceptable to the central bank. Powell stated at the annual meeting of the European Central Bank on Tuesday that the labor market has not cooled too quickly, suddenly, or sharply. On the contrary, Powell believes that "labor market data has been developing in the kind of way we hope to see, and also the kind of situation we have been seeing.".
However, some industry insiders are now warning that a strong employment report may not necessarily make the Federal Reserve "more hawkish", but a weak report may support their reasons for lowering interest rates in September.
Bloomberg economists Anna Wong, Stuart Paul, and others wrote in a data outlook released on Friday, "Overall wages may indicate that the Federal Reserve can maintain patience in rate cuts, but the recent rise in unemployment rates signifies more urgency. We believe that the Federal Reserve will have enough evidence at the FOMC meeting in September to begin rate cuts."
According to the FedWatch tool of the Chicago Mercantile Exchange, investors currently believe that the likelihood of the Federal Reserve cutting interest rates in September is close to 73%.
It is worth mentioning that although the industry currently expects the possibility of the Federal Reserve cutting interest rates by the end of this month to be minimal, some institutional figures still urge investors not to completely ignore this possibility. TSLombard economists pointed out in a recent report that if the unemployment rate rises in June, then the July interest rate cut may ultimately be triggered.
TSLombard economist Steven Blitz's report emphasizes the policy actions that the Federal Reserve may take. The report suggests that the Federal Reserve may lower interest rates under the influence of the Taylor rule, driven by the decline in PCE data. The Federal Reserve is shifting its focus from inflation control to managing economic growth signals, and this week's June employment data plays a crucial role in its decision-making.
Sarah House, senior economist at Wells Fargo Bank, and other economists have stated that with the increase in unemployment claims and the highest unemployment rate in over two years, the main concern is that the labor market will continue to slow down, and its final landing point will be weaker than before the pandemic.
In a statement to clients, House wrote, "Given the significant cooling of the labor market over the past year, we believe that further weakness in the labor market will become even more concerning and will not be welcomed by the Federal Reserve."