 "US jobs report set for release today: What will it reveal and why is it crucial?")
By As the United States Federal Reserve edges closer to a potential rate cut decision, the US jobs report, due today, will provide key insights into whether recent economic trends are temporary hiccups or signs of deeper issues.
Friday’s report is seeing
economists and policymakers alike, scrutinising it closely as it will greatly influence the Federal Reserve’s next move regarding interest rates.
The Federal Reserve has signalled the possibility of cutting rates for the first time since the pandemic’s onset. The size of the cut — whether a standard quarter-point or a more aggressive half-point — hinges largely on the health of the labour market.
Fed Chair Jerome Powell has highlighted the importance of not allowing further weakening in labour conditions. “We do not seek or welcome further cooling in labour market conditions,” Powell stated during his most recent speech, indicating that the Fed remains vigilant about the evolving job market.
Today’s report could tip the scales on whether the Fed decides to act aggressively or cautiously during their September 17-18 meeting.
What are the concerns?
Recent data points have raised red flags about the health of the US job market. July’s unemployment rate jumped to 4.3 per cent, a sharp rise from 3.4 per cent in April 2023.
While the increase is concerning, economists have been cautious about declaring a full-blown economic downturn. The key question is whether this rise in unemployment signals a deeper problem or is simply a blip in an otherwise resilient market.
Economists predict today’s report may show the US economy added around 160,000 jobs in August, with the unemployment rate edging down to 4.2 per cent.
Some experts, however, suggest this slowdown in hiring could be attributed to an influx of new entrants into the labour force, including recent immigrants and college graduates, who have yet to secure jobs.
“This makes the increase in unemployment less alarming than it would be if it were driven by widespread layoffs,” explained Daniel Zhao, lead economist at Glassdoor told AP. Still, the worry is that sluggish hiring could be the precursor to future layoffs, further weakening the labour market.
Another factor in July’s rise in unemployment was a surge in temporary layoffs, often driven by factors like extreme weather. David Mericle, chief US economist at Goldman Sachs, noted that “it seems possible that some of them are linked to extreme heat in California.”
Goldman Sachs Research’s Chief US Economist David Mericle explains why he believes the risk of a US recession is lower than consensus expectations: https://t.co/FvvsSx1Vdb #GSExchanges pic.twitter.com/PXvAwg0xk9
— Goldman Sachs (@GoldmanSachs) August 6, 2024
Historical patterns show such temporary surges can reverse quickly, as seen in previous years when similar jumps disappeared within a month. Yet, if this trend persists, it may indicate deeper structural issues in the economy.
How could the jobs report influence the US elections?
The stakes of today’s report extend beyond the US Federal Reserve’s decisions. A slowing labour market could have significant political ramifications in the lead-up to the US presidential election. With the jobless rate at its highest point in three years, the data could either bolster or weaken US President Joe Biden’s economic record.
If hiring continues to slow, it could provide fuel for critics like former US President Donald Trump, who has blamed the Biden administration for a worsening economy.
On the other hand, a stable or improving labour market could serve as a talking point for US Vice President Kamala Harris, who recently touted the administration’s success in taming inflation while maintaining economic growth.
Trump and Harris have both laid out starkly different economic visions ahead of the 2024 election. Trump has promised to cut corporate taxes and eliminate certain individual taxes, while Harris has proposed increasing tax deductions for small businesses and raising the corporate tax rate.
How will the US jobs report impact global financial markets?
The ripple effect of the US jobs report will also be felt across global financial markets. Wall Street is already on edge after a week of mixed economic data. Stocks have struggled amid concerns about weakening demand and falling job openings.
The Dow Jones Industrial Average has dropped 1.9 per cent this week, while the S&P 500 and Nasdaq have posted steeper losses at 2.6 per cent and 3.3 per cent, respectively.
Speaking to CNN, Christopher Larkin, managing director at E*Trade, captured the market’s current mood: “We’re in a ‘good news is good, and bad news is bad’ environment, and markets are still trying to figure out if the economy is slowing too much, and whether the Fed is behind the curve.”
Internationally, Asian markets are experiencing heightened volatility. The MSCI’s index of Asia-Pacific shares outside Japan rose slightly but remained down 2.3 per cent for the week. The performance of oil prices also hinges on today’s report.
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Brent crude futures are currently at $72.8 a barrel, down 7.6 per cent for the week, marking oil’s worst week since October 2023.
The jobs report will also likely affect the bond market, as Treasury yields, which have dropped in anticipation of weaker economic data, could rise again if today’s numbers indicate robust job growth. The two-year Treasury yield has already fallen 17 basis points this week, reflecting traders’ expectations for a smaller rate cut.
What next?
Beyond today’s jobs report, economists will be closely watching future indicators of economic performance, including jobless claims and consumer spending, which have remained robust despite concerns of a slowing economy.
Consumer spending, which drives the majority of US economic growth, increased at a healthy pace in July, and the US economy grew by 3 per cent in the second quarter of 2023.
For now, much depends on the upcoming jobs data. A weak report could open the door to more significant Fed action, while a stronger report may reinforce the view that the economy is on stable footing.
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Christopher Waller, a key member of the Fed’s Board of Governors, is expected to weigh in on the economic outlook later today in a speech at the University of Notre Dame. His remarks, in light of the new data, could provide crucial insights into what lies ahead for the US economy and financial markets.
Either way, today’s numbers will likely shape monetary policy, political strategies, and market movements in the months ahead.
With inputs from agencies
