US nonfarm payrolls preview: what traders need to know
The August jobs report could cement Fed rate cut expectations, with consensus forecasting just 75,000 new positions added.
What economists are forecasting for August jobs data
The consensus among economists points to a decidedly modest jobs report, with Reuters citing expectations of around 75,000 new positions added in August. This would represent a significant slowdown from previous months, with estimates ranging from zero to 110,000 new jobs.
The significance of this particular report cannot be overstated, coming just weeks before the Federal Reserve's (Fed) September meeting. A disappointing jobs figure would provide the central bank with additional justification for beginning their anticipated easing cycle.
How weak jobs data could reshape Federal Reserve policy
Bond futures markets are pricing in roughly 90% probability of a 25 basis-point rate cut at the Fed's 17 September meeting. A soft jobs report would likely cement these expectations, potentially even opening the door to speculation about more aggressive easing measures.
The unemployment rate forecast of 4.2% represents a meaningful shift from the sub-4% readings we became accustomed to during the post-pandemic recovery. This gradual rise in joblessness aligns with the Fed's dual mandate of maintaining both price stability and full employment.
Average hourly earnings are expected to rise just 0.2% month-on-month (MoM) and 3.5% year-on-year (YoY), indicating wage growth pressures are continuing to moderate. This would provide additional comfort to policymakers concerned about wage-price spirals that could sustain inflationary pressures.
Potential market scenarios and their implications
A weak report showing fewer than 50,000 jobs added and unemployment rising to 4.3% or higher would likely cement expectations of multiple Fed cuts. This scenario would probably push Treasury yields lower while supporting equity markets, particularly growth stocks that benefit from lower discount rates.
An in-line result of 70,000 to 80,000 jobs with unemployment at 4.2% would maintain the base case of one September rate cut. However, markets might adopt a more cautious stance regarding further easing, particularly if wage growth remains stubbornly elevated.
A stronger surprise showing more than 100,000 jobs and wage growth above 0.3% monthly could challenge dovish market positioning. While the Fed would likely still cut in September given previous guidance, such strength might reduce expectations for aggressive easing cycles.
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