CMSC: Weak Non-Farm Payrolls Catalyze the Fed's Adding Fuel to Rate Cut Expectations.

The CMSC released a research report stating that weak August non-farm payroll data (adding 22,000 jobs, well below expectations) coupled with an increase in the unemployment rate to 4.3% have strengthened the market's expectation of a Fed rate cut in September. This has also sparked investors' bets on a more aggressive rate cut pace (such as a 50 basis point cut or consecutive rate cuts). The data indicates a significant cooling in the labor market, with not only soft job growth, significant downward revisions to previous values, but also stagnant work hours and slowing wage growth. The market reacted strongly, with US bond yields falling significantly, the US dollar weakening, and concerns about economic cooling adding pressure to US stocks. Key points: Following a downward revision in July's US non-farm payroll data, the August non-farm job additions once again fell well below expectations. With weak performance in the JOLTS and ADP employment data released earlier this week, and with overseas markets expecting a significant downward revision to the BLS's benchmark non-farm data, the market's expectation of a Fed rate cut in September was already established before the release of this data. Following the data release, the US 2-year bond yield fell by around 11 basis points, overseas markets began to anticipate a 50 basis point cut or consecutive rate cuts in September, the US dollar index weakened, and concerns about economic fundamentals cooling put pressure on US stocks. Specifically: 1) In August, non-farm job additions were 22,000, significantly lower than the market's expectation of 75,000. The previous month's data was revised down, with July's non-farm job additions revised from an initial value of 73,000 to 79,000, and June's data revised down to -13,000, the first negative value since April 2020. 2) Looking at various industries, construction, manufacturing, business services, and government sectors all showed significant cooling, while education and healthcare services as well as the leisure and hospitality industry were the main supports. The government sector saw a decrease of 16,000 jobs (previously 2,000), with federal government job losses increasing to 15,000 (previously 10,000). Business services recorded a loss of 17,000 jobs (previously 10,000), with temporary support services recording a loss of 10,000 jobs (previously 10,000). Construction saw a loss of 7,000 jobs (previously 1,000). The education and healthcare services industry, which is a major support sector, saw growth slowing marginally, with 46,000 jobs (previously 77,000). The leisure and hospitality industry saw a seasonal rebound, adding 28,000 jobs (previously 6,000). 3) Looking at household survey data, there was a rebound in labor market supply, with the labor force participation rate increasing slightly to 62.3% (previously 62.2%), leading to an increase in the unemployment rate to 4.3% (previously 4.2%). The labor force participation rate for prime-age workers (25-54 years old) rebounded to 83.7% (previously 83.4%). The U3 unemployment rate rose to 4.3% (previously 4.2%), while the broadest U6 unemployment rate rose to 8.1% (previously 7.9%), reaching a near two-year high. Looking at ethnic groups, the unemployment rate for whites remained unchanged at 3.7% (previously 3.7%), while the unemployment rate for Asians fell to 3.6% (previously 3.9%) and for African Americans continued to rise to 7.5% (previously 7.2%). 4) The average weekly hours for the private sector remained at 34.2 hours (previously 34.2 hours), indicating weak data reflecting a cooling demand for labor. Wage growth continued to slow, with a year-on-year increase of 3.7% (previously 3.9%) and a month-on-month increase of 0.27% (previously 0.33%). Among them, wage growth in the construction industry recorded an increase of 0.6% month-on-month, while the utilities sector recorded an increase of 1.2%. Considering the negative non-farm job additions in various industries, the increase in prices and reduction in quantity may reflect the impact of changes in immigration policies and a decrease in labor supply. The latest Beige Book released by the Fed on Thursday also mentioned that some regions reported a decrease in immigrant labor supply, particularly affecting the construction industry. With weak performance in the JOLTS and ADP employment data released earlier this week, including the ADP job additions falling to 54,000 (previously 106,000), the US 2-year bond yield had already begun to fall before the non-farm data was released, establishing the market's expectation of a 25 basis point rate cut by the Fed in September. In addition, the BLS will release revised benchmark non-farm data on September 9, with Fed Governor Waller mentioning in a speech on August 28 that this revision may lead to a downward revision of around 60,000 non-farm job additions per month, indicating overseas markets are already anticipating weak data and downward revisions. Following the release of this non-farm data, the US 2-year bond yield fell by 11 basis points to around 3.47%, and overseas markets began to anticipate a 50 basis point rate cut or consecutive rate cuts by the Fed in September. The US dollar index fell to 97.5, relieving pressure on the pound and yen. Economic fundamentals cooling pressure led to a slight adjustment in US stocks, with the Dow Jones falling by 0.7% to around 45,300 points.