Tonight at 8:30, will the non-farm payrolls help the Federal Reserve "prematurely" cut interest rates again?

At 20:30 Beijing time on Friday, the United States will release the August non-farm payroll report. With less than two weeks to go before the highly anticipated "first rate cut" by the Federal Reserve, Wall Street and traders are closely watching whether the performance of the labor market supports a significant rate cut by the Fed.

Previously, the U.S. unemployment rate unexpectedly rose to 4.3% in July, triggering the Sam rule symbolizing an economic recession. The addition of non-farm employment was also lower than expected, leading to a global stock market crash on "Black Monday" on August 5th, when the market once believed that the Fed needed to cut interest rates urgently to rescue the market. In addition, after Fed Chairman Powell stated that it was time to start cutting rates, the market debated whether the rate cut in September would be 25 or 50 basis points. Therefore, this non-farm payroll report is particularly important as regardless of whether the data performs below or above expectations, various asset prices are likely to experience significant volatility.

eToro U.S. investment analyst Bret Kenwell said, "The last employment report was quite disappointing. It did indicate some concerns in the labor market, which is the lifeblood of the U.S. economy... So I think investors may be more nervous this time before the data is released than before."

Market expectations suggest that the U.S. will see a significant rebound in August non-farm payroll of around 160,000, compared to the previous 114,000, possibly due to the absence of hurricane impact in August and a surge in immigrant numbers; the unemployment rate is expected to slightly drop from 4.3% to 4.2%, partly due to the reversal of temporary layoffs in July; in terms of wages, it is expected that the monthly and annual growth rates of average hourly wages will be 0.3% and 3.7% respectively, slightly higher than the previous values, possibly due to base effects.

Julia Pollak, Chief Economist at ZipRecruiter, said, "Our data shows that July was very weak, but there was some improvement in August." She added that the expected addition of non-farm jobs will be around 150,000. Paychex, a provider of human resources services, found that wage growth is also declining. The company found that "average hourly wage growth (2.89%) fell below 3% for the first time since January 2021," and further dropped to 1.91% in August. Similarly, Homebase, a small business human resources technology company, stated that a survey of 100,000 companies showed that work hours in August decreased by 3.5% compared to July, and the number of employees also decreased by a similar percentage.

During a speech at the annual economic symposium in Jackson Hole, Wyoming, Powell stated that recruitment has "significantly cooled off," and the Fed is not "seeking or welcoming further cooling of the labor market." Economists interpret that if the Fed believes it needs to offset the impact of a slowdown in employment, it may accelerate rate cuts. In the latest Beige Book, the Fed described the employment level as "overall flat or slightly rising in recent weeks." This may indicate that the Federal Reserve believes that the labor market may not continue to deteriorate, even though people are increasingly concerned that high interest rates may excessively suppress labor demand.

According to the Job Openings and Labor Turnover Survey (JOLTS) released on Wednesday by the U.S. Bureau of Labor Statistics, the number of job vacancies in the United States decreased to 7.67 million in July, the lowest level since the beginning of 2021, with an increase in layoffs, consistent with other signs of slowing worker demand. After the data was released, short-term interest rate futures showed that the probability of the Fed cutting rates by 50 basis points in September was briefly higher than cutting rates by 25 basis points.

Citibank pointed out that the August employment data will be a key factor in determining whether Fed officials will choose to cut rates by 50 basis points or 25 basis points when they start the rate-cutting cycle in September. Since the August employment data will be released on the day before the Fed's silent period for the September meeting, whether to cut rates by 50 basis points or 25 basis points will largely depend on this data.

The bank expects the August report to be similar to July, with an addition of 125,000 jobs and an unemployment rate remaining at 4.3%, all of which are more pessimistic than market consensus. Citibank believes that this will indicate that the weaker data in July was not due to temporary factors, but rather reflected a genuine softness in labor demand, which is expected to prompt the Fed to cut rates by 50 basis points in September.

The bank also pointed out that even if the unemployment rate slightly decreases, after several months of increase, just one month of data may not be enough to convince Fed officials that the unemployment rate will not continue to rise. However, if the unemployment rate falls to 4.2% or even 4.1%, the performance of the non-farm employment population data will be more important. Citibank believes that if the addition of non-farm jobs in August is less than 125,000, even if the unemployment rate falls, a larger rate cut may still be a more feasible option.

However, Lydia Boussour, Senior Economist at EY-Parthenon, said, "The August employment report is likely to keep the Fed's momentum of cutting rates by 25 basis points at the policy meeting in September." She added, "Annual job growth is expected to remain below trend, with employers expected to add an average of 100,000 jobs per month for the remainder of the year, and the unemployment rate is expected to moderately rise to 4.5% by the end of the year."

While slowing job growth is expected, there is growing concern that the labor market is not only slowing under the Fed's pressure to curb inflation through rate hikes, but is actually gradually heading towards collapse.

Stephen Dover, Director of Franklin Templeton Institute and Chief Market Strategist, believes that investors may pay more attention to whether the rise in the unemployment rate is due to actual job losses or an increase in labor force participation. Weekly initial jobless claims (an increase indicates more workers being laid off), whether temporary layoffs are turning into permanent layoffs, and the overall increase or decrease in non-farm employment each month will be key data points to assess the true performance of employment.