The US employment situation in August is neither good nor bad, and the extent of interest rate cuts still remains uncertain

Key Points

1. In August, the US added 142,000 non-farm jobs, lower than the expected 160,000 but higher than the previous 89,000. The data for the previous two months was revised down by a total of 86,000. The unemployment rate was 4.2%, in line with expectations and lower than the previous 4.3%. Average hourly wages increased by 0.4% month-on-month, higher than the expected 0.3% and the previous 0.2%. It is worth noting that the unemployment rate this month still triggers the "Sam Rule".

2. After the data was released, US stocks and gold fell, the US dollar index and US bond yields rose. The market's expectations for a Fed rate cut did not change much, with the probability of a 100-125 basis point cut within the year and a 50 basis point cut in September at around 30%.

3. Overall, the US employment data for August was not bad, showing some improvement compared to the previous month, confirming the weather disturbances in July. However, the data was not strong enough to dispel market concerns about a US recession, indicating that the market needs to observe more data to confirm or refute recession expectations. Risk appetite remains under pressure in the short term, and the "recession trade" may continue.

4. Recent high-frequency indicators for the US economy and employment have shown improvement. The Fed's model predicts that the actual GDP growth rate for the third quarter will still be above 2%. Although the US economy is slowing down, it is far from a recession. There is still a divergence in the market on whether the Fed will cut rates by 50 basis points or 25 basis points. Focus will be on the US CPI data for August released on 9/11, which will provide important guidance for the rate cut decision at the Fed's meeting on 9/18.

Main Content

1. Job growth in the US improved in August but was weaker than expected, and the unemployment rate slightly decreased but still triggered the "Sam Rule".

Overall employment performance: In August, the US added 142,000 non-farm jobs, lower than the expected 160,000. The data for July and June were revised down from 114,000 and 179,000 to 89,000 and 118,000, respectively, with a total downward revision of 86,000. The unemployment rate was 4.2%, in line with expectations and lower than the previous 4.3%, marking the second highest since November 2021. The labor force participation rate was 62.7%, in line with expectations and the previous value. Average weekly hours worked were 34.3, in line with expectations and slightly higher than the previous 34.2 hours. Average hourly wages increased by 0.4% month-on-month, higher than the expected 0.3%, the previous 0.2%, and the 12-month average of 0.3%. It is worth noting that after the unemployment rate triggered the "Sam Rule" last month, the conditions for the "Sam Rule" are still met this month (the 3-month moving average of the unemployment rate has risen by more than 0.5% from the low point of the past 12 months).

![](https://wpimg-wscn.awtmt.com/a28bc634-5cd8-4100-86e0-7e71489e35b9.png? Industry Employment Performance: Looking at the unemployment rate performance of various industries in the United States in August, the mining, construction, and transportation/utilities industries showed the most significant improvement. These were also the three industries with the most severe employment deterioration in July, which is consistent with our previous assessment that the hurricanes in early July had a significant impact on these industries. The information and financial industries saw a slight increase in unemployment rates, while other industries had minimal changes. Overall, the labor market still exhibits a phenomenon of "layoffs in high-end positions and labor shortages in low-end positions."

Data Interpretation: Overall, the employment data in the United States for August was not bad, showing some improvement compared to July, confirming the weather disturbances in July. However, the data was not strong enough to dispel market concerns about a U.S. recession, indicating that the market needs to observe more data to confirm or refute recession expectations. In the short term, risk appetite remains under pressure, and "recession trades" may continue.

2. After the non-farm payroll report, U.S. stocks and gold fell, while the U.S. dollar index rose, with little change in rate cut expectations.

Asset Class Performance: After the non-farm payroll report, U.S. stocks and gold initially rose and then fell, while U.S. bond yields and the U.S. dollar index initially fell and then rose. As of the close on 9/7, the S&P 500, Nasdaq, and Dow Jones indices fell by 1.7%, 1.0%, and 2.6% respectively; the 10-year U.S. bond yield increased by 2.1 basis points to 3.71%; the U.S. dollar index rose by 0.1% to 101.2; and spot gold fell by 0.8% to $2497.1 per ounce.

Rate Cut Expectations: After the non-farm payroll report, the implied rate cut expectations from interest rate futures did not change significantly. Currently, the market expects the Federal Reserve to cut rates by 100-125 basis points within the year, with a 30% probability of a one-time 50 basis point cut in September; if only a 25 basis point cut occurs in September, the probability of a 50 basis point cut in November is close to 90% 3. Currently, there are no clear signs of a recession in the US economy, and the possibility of a direct 50 basis point rate cut remains uncertain.

Recession assessment: From a high-frequency indicator perspective, as of the end of August, the unemployment rate for those holding unemployment insurance remains stable at a low level of 1.2%. The number of initial claims for unemployment benefits has decreased from 250,000 at the end of July to 227,000. The weekly economic index has risen from its low point of 1.5% at the end of July to 2.4%, higher than the average of 1.8% since the beginning of the year. In addition, as of early September, the New York Fed's Nowcast model predicts a quarter-over-quarter annualized real GDP growth rate of 2.6% for the US in the third quarter, while the Atlanta Fed's GDPNow model predicts 2.1%, slightly lower than the 3.0% in the second quarter. Overall, the slowdown in the US economy is a certainty, but the current slowdown is still relatively mild and far from reaching a recessionary level. We maintain our previous judgment: 2024 is the process of the US economy gradually bottoming out and stabilizing, with improvements expected in 2025.

Rate cut assessment: In the history of the Fed's rate cut cycles since 1982, there have been 3 instances of the first rate cut directly reducing by 50 basis points, which occurred in September 2007, January 2001, and November 1987. There have also been instances of a single 50 basis point cut, but they were not the first rate cut. We have reviewed the performance of various economic indicators before these 3 instances of the first direct 50 basis point cut and compared them. It can be seen that the current situation is at a moderate level, where a 50 basis point or 25 basis point cut is considered reasonable. With less than two weeks until the September 18th interest rate meeting, there is still a divergence in the market regarding the rate cut magnitude. It is crucial to pay attention to the US CPI data for August, which will provide important guidance on the rate cut magnitude. However, it is certain that whether it is a 50 basis point or 25 basis point cut, it will lead to a correction in market expectations and asset price volatility Authors: Xiong Yuan S0680518050004, Liu Xinyu S0680521030002 Source: Xiong Yuan Observation Original Title: "US August Employment Neither Good Nor Bad, Rate Cut Still Suspenseful" This article has been slightly edited