Interpretation of June non-farm employment data: Saving the Federal Reserve from dire straits

1. The concept of non-farm data (Non-farm Payroll)

US non-farm employment data is obtained from the Bureau of Labor Statistics (BLS) ) is an important economic indicator released by the United States, which measures U.S. employment in industries other than agriculture. This data, usually released on the first Friday of every month, is one of the indicators that investors, policymakers, economists, and market analysts pay close attention to because it provides an important indicator of the health of the U.S. economy.

Non-farm employment data includes changes in employment numbers, unemployment rate, average hourly earnings, labor force participation rate and other data.

2. Specific calculation caliber of non-agricultural data

BLS compiles non-agricultural data based on a series of detailed surveys and statistical methods. The following are some key steps and methods for calculating non-farm employment data:

• Sample Survey: The BLS collects data through the Household Survey (Current Population Survey, CPS) and the Business Survey (Current Employment Statistics, CES). The household survey is used primarily to calculate the unemployment rate and labor force participation rate, while the business survey is used to calculate the number of people employed and average hourly earnings.

• Household Survey (CPS): The CPS is a monthly survey covering approximately 60,000 households designed to collect 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.

• Enterprise Survey (CES): CES is a survey of a sample of enterprises designed to collect employment, hours and wage data in the non-agricultural sector. The BLS calculates changes in employment and average hourly earnings based on the survey.

• Industry Classification: Non-agricultural employment data divides employment into different industry categories, such as manufacturing, construction, services, etc., in order to analyze the employment situation in each industry in more detail.

• Data adjustment: In order to ensure the accuracy of the data, the BLS will seasonally adjust the data to eliminate the impact of seasonal factors on employment data.

3. Summary of non-agricultural data in June 2024

June non-agricultural data showed that the labor market remained stable but relaxed slightly. The United States added 206,000 new jobs in June, in line with expectations. May's nonfarm payrolls growth was revised downward to 218,000, while April's nonfarm payrolls growth was also revised downward to 108,000.

Nonfarm employment growth in June brought the three-month average job growth to 177,000, recording the lowest growth since January 2021. This highlights that the Federal Reserve's tight monetary policy is slowing the pace of job growth.

The growth in non-agricultural data in June was mainly concentrated in a few fields, with employment growth in the government and healthcare industries accounting for almost three-quarters of the total growth. Strong growth in government jobs (+70,000) was driven primarily by gains in state and local government jobs (+65,000).

Wage growth in the private sector continued to slow in June, falling to 136,000 from 193,000 in May, with the health care and social assistance industry accounting for 82,000 of those jobs. Digging into the details, employment in goods-producing industries rose by 19,000 in June, with strong growth in construction offsetting a decline in manufacturing employment. The services sector also softened in June, with payrolls rising by 117,000, down from 181,000 in May. While the health care industry posted strong gains in June, employment growth in most other service industries began to turn negative. This shows that the job market has begun a mild correction

4. The expected impact of June 2024 non-farm data on the Fed’s future policies

The June non-farm employment report is in line with the Fed’s expected goals , that is, maintaining high interest rates to suppress inflation while ensuring a soft landing in the job market and moderate cooling, clarifying the 2% inflation anchor target level and long-term expectation management, and avoiding a rebound in inflation. Combined with the unexpected cooling of CPI in June, market analysts and derivatives practitioners have generally strengthened their expectations for an interest rate cut by the FOMC in September. The Federal Reserve has always been very cautious in its attitude towards employment data, because the cooling of the job market will lead to instability in the domestic situation, lower people's living standards, and lower consumption levels, and excessive heat in the job market will cause problems at the level of the Phillips Curve Due to inflationary pressure, the Federal Reserve is often caught in a dilemma when it comes to employment issues, which is also one of the main difficulties in adjusting the Fed's monetary policy. Against the background of overall easing of price levels, the mild correction in the job market has given the Federal Reserve more confidence to end its suppression of high interest rates, and also given the Federal Reserve more policy leeway.

If the job market cools more rapidly, the Fed may be forced to cut interest rates early to save non-farm payrolls and unemployment. The painful high-interest environment that the U.S. economy has endured for more than a year may end prematurely, causing the Fed to suppress YCC Efforts have become in vain. Neither the US political circles nor the Federal Reserve can accept such an outcome. Combined with the recent rebound in energy prices, the US economy may fall into a stagflation death spiral in the future;

If the non-farm data indicates that the job market will continue It may also be very difficult for the Federal Reserve to handle. It may continue to extend its high interest rate policy and continue to delay the expected interest rate cut, causing the U.S. dollar index to remain at a high level and further exacerbating the pressure on U.S. government debt interest payments. Since we are currently in the middle of a presidential election, the U.S. finance cannot take drastic measures to shrink its balance sheet. It must ensure that the Biden administration's commitments on medical insurance, student loans, infrastructure, etc. are implemented at least during the election cycle. Therefore, from the perspective of fiscal pressure, the non-agricultural data in June also gave the Federal Reserve a chance to breathe, providing the basis for weakening hawkish expectations and officially putting interest rate cuts on the agenda.