Interpretation of June Non-Farm Employment Data: Saving the Fed in a Difficult Situation
From the perspective of fiscal pressure, the June non-farm data also gave the Federal Reserve some breathing room, providing a basis for weakening hawkish expectations and putting interest rate cuts officially on the agenda.Recently, the U.S. Bureau of Labor Statistics (BLS) released the highly anticipated non-farm payroll data for June. As one of the key indicators of the health of the U.S. economy, non-farm data has always attracted significant market attention. This article will provide a detailed interpretation of the non-farm data for June, exploring its implications for the Federal Reserve's future policies and its potential significance for the U.S. economy. By analyzing this data in depth, we can better grasp the pulse of the U.S. economy and provide valuable insights for investors and policymakers. 1. Concept of Non-farm Payroll (NFP)
The U.S. non-farm payroll data is an important economic indicator released by the Bureau of Labor Statistics (BLS), measuring employment in industries outside of agriculture. This data is typically published on the first Friday of each month and is closely monitored by investors, policymakers, economists, and market analysts, as it provides crucial insights into the health of the U.S. economy.
Non-farm payroll data includes changes in employment numbers, unemployment rates, average hourly earnings, labor force participation rates, and other metrics.
2. Specific Calculation Criteria for Non-farm Data
The BLS compiles non-farm data based on a series of detailed surveys and statistical methods. Here are some key steps and methods for calculating non-farm employment data:
Sample Survey: The BLS collects data through the Current Population Survey (CPS) and the Current Employment Statistics (CES). The CPS is primarily used to calculate unemployment rates and labor force participation rates, 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 on employment, unemployment, and labor force participation. Through the CPS, the BLS can 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 employment, hours worked, and wage data in the non-agricultural sector. The BLS uses this survey to calculate changes in employment numbers and average hourly earnings.
Industry Classification: Non-farm payroll data categorizes employment into different industry sectors, such as manufacturing, construction, and services, to analyze employment conditions in each sector more thoroughly.
Data Adjustment: To ensure data accuracy, the BLS seasonally adjusts the data to eliminate the impact of seasonal factors on employment figures.
3. Summary of June 2024 Non-farm Data
The June non-farm data indicates that the labor market remains stable but has slightly relaxed. In June, the U.S. added 206,000 jobs, in line with expectations. The non-farm employment growth for May was revised downward to 218,000, while the growth for April was also revised downward to 108,000.
The growth in non-farm employment in June brought the average number of jobs added over three months to 177,000, marking the lowest increase since January 2021. This highlights that the Federal Reserve's tightening monetary policy is slowing the pace of job growth.
The growth in June's non-farm data was primarily concentrated in a few sectors, with job growth in government and healthcare accounting for nearly three-quarters of the total increase. The strong growth in government positions (+70,000) was mainly driven by an increase in state and local government jobs (+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 sector accounting for 82,000 of those positions. In more detail, employment in the goods-producing sector increased by 19,000, with strong growth in construction offsetting declines in manufacturing jobs. The service sector also showed weakness in June, with employment increasing by 117,000, down from 181,000 in May. Despite strong growth in the healthcare sector in June, most other service sectors began to show negative job growth. This indicates that the job market has started to moderate.
4. 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 of maintaining high interest rates to suppress inflation while ensuring a soft landing for the job market and moderate cooling, clearly defining the 2% inflation anchor target level and long-term expectations management, avoiding inflation rebound. Coupled with the unexpectedly cooling June CPI, market analysts and derivatives professionals have generally strengthened expectations for a rate cut by the Federal Open Market Committee (FOMC) in September.
The Federal Reserve has always been very cautious in its approach to employment data, as a cooling job market can lead to domestic instability, reduced living standards, and decreased consumption levels, while an overheated 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 one of the main challenges in adjusting monetary policy. In the context of overall price level easing, the moderate adjustment in the job market gives the Federal Reserve more confidence to end high-interest suppression and provides more policy space.
If the cooling of the job market occurs more rapidly, the Federal Reserve may be forced to cut rates early to save non-farm employment and the unemployment rate. The U.S. economy, which has endured a painful high-interest environment for over a year, may face a situation where an early end leads to futile efforts to suppress YCC, a scenario that neither the U.S. political sphere nor the Federal Reserve can accept. Combined with the recent rise in energy prices, the U.S. economy may fall into a stagflation death spiral in the future.
If non-farm data indicates that the job market remains hot, it may also be very difficult for the Federal Reserve to manage, potentially requiring the continuation of high-interest policies and further delaying expected rate cuts, leading to a sustained high dollar index and exacerbating the pressure on U.S. government debt interest payments. Currently, during the presidential election period, the U.S. Treasury cannot take drastic measures to reduce its balance sheet and must ensure that the Biden administration's commitments regarding healthcare, student loans, infrastructure, and other areas are fulfilled at least within the election cycle. Therefore, from the perspective of fiscal pressure, the June non-farm data also provides the Federal Reserve with a breather, laying the groundwork for easing hawkish expectations and formally putting rate cuts on the agenda.
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