At 20:30 Beijing time on Friday (October 7), the September non-farm payrolls report released by the U.S. Department of Labor was positive. Despite the smallest increase since April 2021, the unemployment rate returned to its lowest level since January 2020. As of press time, spot gold has been shocked by more than $12, with a low and high of $1,701.04/oz and $1,713.23/oz, respectively.
Specific data show that non-farm payrolls in the United States increased by 263,000 in September, the smallest increase since April 2021, but the increase was slightly higher than the expected 250,000, and the previous increase was revised down from 308,000 to 275,000; the United States lost jobs in September The rate returned to 3.50%, the low since January 2020, which was 0.2 percentage points lower than the expected value and the previous value;
The federal funds rate showed a 92% chance of a 75 basis point rate hike in November, up from 85.5% before the September nonfarm payrolls report. The report is expected to reinforce market expectations for further rate hikes to 4.50% or more by May next year, when it is expected to turn to cuts in early 2024.
Dennis DeBusschere, founder of 22V Research, commented on the US non-farm payrolls data for September: This is a bad report. The focus was on the unemployment rate falling from 3.7% to 3.5% and the labor force participation rate falling to 62.3%. There are legitimate concerns that the unemployment rate will drop. Combined with the strong headline numbers, this could be called a “hawkish” employment data.
Under normal circumstances, a strong rise in employment or wages is seen as a positive factor. But today, the U.S. economy doesn’t need them, as Fed policymakers try to undo high inflation not seen in decades.
“If unemployment remains low and wage growth remains stable, the Fed is likely to continue raising rates and stick to its $95 billion-a-month quantitative tightening program,” said AJ Bell analysts.
Vincent Reinhart, chief economist at Dreyfus-Mellon, said: “The market is almost in agreement that the main factor for investors to worry about is the Fed tightening policy. When there is enough negative news from the macro side, the Fed can ease the tightening policy.”
no recession
Although data released earlier this week showed that U.S. job vacancies fell by 1.1 million to 10.1 million in August, the largest drop since April 2020, the number of job vacancies is still nearly 4 million more than the number of unemployed Americans. A survey by the Institute for Supply Management (ISM) also showed that some service industries reported labor shortages in September.
Veronica Clark, an economist at Citigroup in New York, said: “As long as monthly job creation exceeds 100,000 jobs, it will continue to put downward pressure on the unemployment rate. Any evidence that the labor market is still very tight will keep the Fed hawkish. .”
The Fed expects the unemployment rate to rise to 3.8% this year and 4.4% in 2023, which is 0.5 percentage points above the unemployment rate associated with past recessions. But despite a contraction in gross domestic product (GDP) in the first half of the year, the U.S. economy has created nearly 3.5 million jobs so far this year.
Initial jobless claims are still low, said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles. “It tells you that the economy isn’t exactly booming, but it’s not shrinking either.”
Fed struggles to find ‘Goldilocks’
Rapidly rising interest rates have made businesses more cautious about the economic outlook, but overall labor market conditions remain tight, providing assurances that the Federal Reserve will maintain its aggressive monetary policy tightening path for some time.
Policy makers are essentially looking for “Goldilocks” — trying to pursue monetary policy that is tight enough to keep inflation down without dragging the economy into a deep recession. But many Fed officials have recently stressed that the Fed’s rate hike cycle is far from over and rates are expected to rise further.
U.S. CPI data for September due next week will also help policymakers assess their progress in fighting inflation ahead of their Nov. 1-2 policy meeting. Financial markets have all but priced in a fourth straight 75 basis point rate hike from the U.S. central bank, according to the CME’s “FedWatch” tool.
Shannon Saccocia, chief investment officer at SVB Private Bank, said: “I don’t think the Fed will adjust the current rate hike rhythm before the end of the year, wages are now embedded in the cost structure. In terms of their areas of interest, they may put more emphasis on food and housing prices.”
Jeremy Stretch, head of G10 currency strategy at CIBC, said: “Unless we witness near-empirical evidence that either the labor market has slowed significantly or inflation pressures have dissipated significantly, any pullback in the dollar is a buying opportunity.”
“We don’t think the Fed will change its assessment that the labor market is still too tight to bring inflation back to the Fed’s 2 percent target,” said Sam Bullard, senior economist at Wells Fargo in Charlotte, N.C. “
Unfavorable factors increase
The Fed has raised interest rates by 300 basis points since the beginning of the year, raising the federal funds rate range to 3.00% to 3.25%. The U.S. central bank also hinted at another big rate hike this year after raising interest rates by 75 basis points for the third time in a row last month.
But as headwinds from rising borrowing costs and slowing demand mount, economists expect companies to sharply scale back hiring, with payrolls likely to turn negative next year. Economists say businesses have been filling open positions as they struggle to expand their workforces to meet growing demand for their products, driving job growth.
The labor market is largely resilient to rising borrowing costs and tightening financial conditions. Economists say companies have shown little inclination to lay off workers after hiring difficulties over the past year as the coronavirus pandemic forces some people out of the labor force, but they are starting to feel more nervous about the economic outlook.
Ellen Zentner, chief U.S. economist at Morgan Stanley in New York, said: “The boost to job growth from the return of workers may end sooner or later, and given that the slowdown in labor demand from the rate hike should continue, we expect that as labor returns to work The loss of support provided to the job market could lead to a faster-than-normal collapse in job growth.”
Vincent Reinhart, chief economist at Dreyfus-Mellon, said: “The Fed has made the mistake of not acting before inflation rises. So if inflation is to be addressed, it has to redouble its efforts. Recession is inevitable, and Fed policy may make It’s getting worse and a recession is just around the corner.”
“The Fed will keep raising rates until the labor market breaks down,” said Bank of America rates strategist Meghan Swiber. “For us, that means the Fed has to let job growth slow and the unemployment rate on an upward trajectory.”