Recently, the Bureau of Labor Statistics (BLS) in the United States released the highly anticipated non-farm payroll data for June. As one of the key indicators for measuring the health of the US economy, non-farm data has always been closely watched by the market. This article will provide a detailed interpretation of the non-farm data for June, discussing its impact on the future policies of the Federal Reserve and its potential significance for the US economy. Through in-depth analysis of this data, we can better grasp the pulse of the US economy, providing valuable reference for investors and policymakers.
I. Concept of Non-farm Payroll
The non-farm payroll data in the United States is an important economic indicator released by the Bureau of Labor Statistics (BLS), measuring the employment situation in non-agricultural industries in the US. This data is usually released on the first Friday of each month and is one of the closely watched indicators by investors, policymakers, economists, and market analysts, as it provides important indicators about the health of the US economy.
Non-farm payroll data includes changes in employment, unemployment rate, average hourly earnings, labor force participation rate, and other data.
II. Specific Calculation Method of Non-farm Payroll Data
BLS compiles non-farm data based on a series of detailed surveys and statistical methods. The following are some key steps and methods for calculating non-farm payroll data:
Sample Survey: BLS collects data through the Current Population Survey (CPS) and the Current Employment Statistics (CES). The CPS is mainly used to calculate the unemployment rate and labor force participation rate, while the CES is used to calculate employment numbers and average hourly earnings.
Current Population Survey (CPS): The CPS is a monthly survey covering approximately 60,000 households, aimed at collecting information about employment, unemployment, and labor force participation. Through the CPS, BLS is able to calculate indicators such as the unemployment rate and labor force participation rate.
Current Employment Statistics (CES): The CES is a survey of a sample of businesses, aimed at collecting data on employment, hours, and wages in non-agricultural sectors. Based on this survey, BLS calculates changes in employment numbers and average hourly earnings.
Industry Classification: Non-farm payroll data categorizes employment into different industry categories, such as manufacturing, construction, and services, for a more detailed analysis of the employment situation in each industry.
Data Adjustment: To ensure the accuracy of the data, BLS conducts seasonal adjustments to eliminate the impact of seasonal factors on employment data.
III. Summary of Non-farm Data for June 2024
The June non-farm data shows that the labor market remains stable but slightly relaxed. In June, the US added 206,000 jobs, in line with expectations. The non-farm employment growth in May was revised downward to 218,000, and the non-farm employment growth in April was also revised downward to 108,000.
The June non-farm employment growth resulted in an average job growth of 177,000 over the past three months, marking the lowest growth since January 2021. This highlights that the Federal Reserve's tightening monetary policy is slowing the pace of employment growth.
The growth in June non-farm employment was mainly concentrated in a few areas, with the employment growth in the government and healthcare industries accounting for nearly three-quarters of the total growth. The strong growth in government positions (+70,000) was mainly driven by an increase in state and local government positions (+65,000).
Private sector wage growth continued to slow in June, dropping from 193,000 in May to 136,000, with the healthcare and social assistance industry accounting for 82,000 of those positions. A closer look reveals that employment in the goods-producing industry increased by 19,000 in June, and the strong growth in the construction industry offset the decline in manufacturing employment. The service industry also showed weakness in June, with employment increasing by 117,000, lower than the 181,000 in May. Despite the strong growth in the healthcare industry in June, employment growth in most other service industries began to turn negative. This indicates that the job market has begun to moderately cool off.
IV. Expected Impact of June 2024 Non-farm Data on Future Federal Reserve Policies
The June non-farm employment report aligns with the Federal Reserve's target goals, which include maintaining high interest rates to suppress inflation under the premise of ensuring a soft landing in the job market and a moderate cooling, clearly anchoring the 2% inflation target level and managing long-term expectations to avoid inflation rebound. Combined with the unexpected cooling of the Consumer Price Index (CPI) in June, the market analysis industry and derivatives practitioners have generally strengthened their expectations for a Fed rate cut in September's FOMC meeting.
The Federal Reserve has always been very cautious in its approach to employment data. Cooling in the job market can lead to domestic instability, a decrease in people's living standards, and a decrease in consumption levels, while excessive heat in the job market can create inflationary pressures at the Phillips curve level. The Federal Reserve often finds itself in a dilemma regarding employment issues, which is also one of the main challenges in adjusting monetary policy. Against the backdrop of comprehensive easing of price levels, the moderate cooling of the job market has given the Federal Reserve more confidence to end the high-interest rate suppression and more policy leeway.
If the cooling of the job market accelerates, the Federal Reserve may be forced to cut interest rates early to rescue non-farm employment and the unemployment rate. The US economy has endured over a year of painful high-interest rate environment, and premature termination of this environment could render the Federal Reserve's efforts to suppress Yield Curve Control (YCC) futile. Neither the US political arena nor the Federal Reserve can accept such an outcome. Combined with the recent rise in energy prices, the US economy may be at risk of falling into a spiral of stagflation in the future.
If the non-farm data indicates continued hotness in the job market, it may also be very difficult for the Federal Reserve to handle. It may have to continue the high-interest rate policy and further delay the expected time for rate cuts, leading to the US dollar index remaining at high levels and further exacerbating the pressure on the US government's interest payments on national debt. As the US is currently in a presidential election period, the US fiscal policy cannot take drastic measures to shrink its balance sheet and must ensure that the Biden administration's commitments regarding healthcare, student loans, infrastructure, and other aspects are implemented at least during the election cycle. Therefore, from the perspective of fiscal pressure, the June non-farm data also provides the Federal Reserve with some breathing room, laying the foundation for weakening hawkish expectations and formally putting rate cuts on the agenda.
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