Tonight's non-farm payroll report, will the hurricane bring surprise or shock?

At 8:30 tonight, the United States will release the latest non-farm payroll report. The market believes that the U.S. is expected to add 175,000 non-farm jobs in July, with an hourly wage rate of 0.3% and an unemployment rate expected to remain at 4.1%. Some investment bank analysts believe that tonight's non-farm payroll report may fall short of expectations, with the main downside risk coming from the "Hurricane Beryl" that hit Texas earlier.

J.P. Morgan pointed out that "Hurricane Beryl" made landfall during the reference week of the July employment report, which could distort the data to be released tonight. Severe weather events can suppress regional data, but may also affect national data. The hurricane caused the seasonally adjusted initial claims for unemployment benefits in Texas to surge by over 6,000 people in the week ending July 13. J.P. Morgan believes that the hurricane may lead to a decrease of 20,000 to 30,000 non-farm jobs, but it is important to note that there may be a rebound in August due to weather-related reasons, adding the same amount. In other words, the weaker-than-expected job growth in July does not necessarily indicate a deterioration in the labor market itself.

Goldman Sachs also pointed out in a research report that Hurricane "Beryl" caused over 2 million Texas residents to lose power, which clearly affected the state's employment, but the impact on non-farm jobs may not be significant. Past analysis has found that large hurricanes have an average impact of about 25,000 on job growth. About three-quarters of Texas employees are paid every two weeks, semi-monthly, or monthly, so they may still be counted as "employed" during the hurricane landing period. Unless they did not work at all during the entire reference period, employees will not be counted as unemployed in the survey. This will result in a relatively mild impact of the hurricane on the number of non-farm jobs.

Economists estimate that a large part of the reduced non-farm population may be concentrated in the construction, leisure and hospitality, transportation, and retail industries. However, the situation where some car manufacturers postpone shutdowns to re-adjust production of new car models may partially offset this impact.

"We expect that the slowdown in July may underestimate the true pace of job growth," said Yelena Shulyatyeva, senior economist at Credit Suisse. "The distortions caused by the hurricane are expected to reverse in August."

"Hurricane Beryl" may also push up average hourly wage data, as most workers forced to stay at home work in lower-paying industries, and the hurricane may also reduce their working hours. The market expects the average hourly wage rate to rise by 0.3%, consistent with the increase in June, and is expected to grow by 3.7% year-on-year. This will be the smallest year-on-year increase since May 2021. Although wage growth remains above the 3%-3.5% range needed for the Fed to achieve its 2% inflation target, this will continue the data trend favorable to inflation.

Analysts also expect the unemployment rate to remain at 4.1%, the level after three consecutive months of increase. Since hitting a 50-year low of 3.4% in April 2023, the unemployment rate has risen, leading to concerns about an economic downturn. Economists believe these concerns are misleading, pointing out that layoffs are still at historically low levels. **

"This is important because it means the economy has not experienced the usual vicious cycle, where unemployment and income loss lead to reduced spending by laid-off workers, further causing more unemployment," economists at Goldman Sachs wrote in a report. "The increase in the unemployment rate is partly due to the surge in labor supply driven by immigrants, while job growth has not fully kept pace."

"The labor market conditions are good, but there are clear signs that momentum is also weakening," said Ernie Tedeschi, Director of Economic Research at the Yale Budget Lab. "The slowdown is consistent with a labor market reaching its peak, rather than deteriorating."