JOLTS, ADP, initial jobless claims, and the nonfarm payrolls data all point to a weakening labor market. The nonfarm payrolls report carries strong signaling power for the Fed, so we split the analysis into pre- and post-release to gauge market expectations on the size of the rate cut.
Pre-NFP Release
JOLTS
July U.S. job openings came in at 7.673 million, well below the expected 8.1 million. June's figure was revised down from 8.2 million to 7.9 million, indicating a sharp drop in labor demand and further softening of the labor market. The ratio of job openings to unemployed workers in June was 1.2, meaning 1.2 openings per unemployed person. After this data release, the ratio fell to 1.07, well below pre-pandemic levels and the lowest since 2018.
(Source: Macro Micro)
Despite the decline in job openings, layoffs rose to 1.76 million, an increase of 202,000 from June, with the layoff rate at 1.1%, unchanged for several months. Meanwhile, total quits increased by 336,000, pushing the quits rate to 3.4% of the labor force, with the voluntary quits rate at 2.1%. However, hiring also picked up, with 273,000 new positions added, lifting the hiring rate to 3.5%, up 0.2 percentage points from June. By industry, healthcare and social assistance cut 197,000 jobs, accounting for 80% of the total decline. Professional and business services saw an increase of 178,000 openings, manufacturing added 31,000, while trade, transportation, and utilities lost 157,000, and government openings fell by 92,000. Notably, despite government being a key driver of job growth in recent years, its openings also declined.
ADP
The latest ADP employment data showed that August private payrolls increased by 99,000, below the market expectation of 144,000 and the revised prior month's 111,000. This suggests that while the job market is still growing, the pace is slowing, possibly due to factors like global trade tensions and domestic economic restructuring. Additionally, technological advances and automation may be reducing jobs in some traditional industries. Still, some argue that a single month's data is not enough to judge the trend, and government policies to boost employment and growth may show effects over time.
By sector, education and health services added 29,000 jobs, construction added 27,000, other services added 20,000, financial activities added 18,000, trade/transportation/utilities added 14,000, mining added 8,000, and leisure/hospitality added 11,000. Meanwhile, professional/business services, manufacturing, and information services cut 16,000, 8,000, and 4,000 jobs respectively. These figures indicate that despite the overall slowdown, some sectors continue to add jobs.
Annual pay for job-stayers rose 4.8%, roughly the same as in July, suggesting wage growth remains solid even as hiring slows.
Initial Jobless Claims
For the week ending August 24, initial jobless claims were 231,000, up 20,000 from the prior week. This increase may reflect some volatility in the labor market, but claims remain at a low level overall, indicating relative stability. Note that initial claims do not capture net unemployment, as they only count new claims in the week, not those who found new jobs. Thus, these data need to be analyzed alongside other indicators.
Rate Cut Expectations
Before the NFP release, CME FedWatch showed a 59% probability of a 25bp cut in September and 41% for a 50bp cut.
Post-NFP Release
Nonfarm Payrolls
On September 6, the Bureau of Labor Statistics reported that June nonfarm payrolls were revised down from 179,000 to 118,000, and July from 114,000 to 89,000. Combined, the revisions lowered the two-month total by 86,000. The August unemployment rate was 4.2%, matching expectations and down from 4.3% in July.
Rate Cut Expectations
After the data release, traders increased bets on a larger Fed cut. CME FedWatch showed a 41% probability of a 25bp cut and 59% for a 50bp cut. The 10-year Treasury yield fell to 3.666%, the lowest since June 2023.
Let's wait for the Fed's September FOMC decision.
Risk Disclaimer: This content is for informational purposes only and does not constitute investment advice. Market risk exists; invest with caution.
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