Zhitong Finance APP learned that at 20:30 Beijing time on October 7 (Friday), the U.S. Department of Labor will release its September non-farm employment report. Economists expect non-farm employment to increase by 250,000 in September, the unemployment rate remains at 3.7%, and the average hourly wage increases by 0.3% month-on-month and 5.1% year-on-year.
In normal times, strong employment growth and wage increases will be considered good news. But now, as the Federal Reserve tries to fight off inflation, a strong job market is exactly what the U.S. economy doesn't need.
Stronger than expected employment report may indicate that the Fed needs to take more aggressive rate hikes on inflation, thus disrupting the market. Instead, a job report that is inferior to expectations may bring a glimmer of hope to the market.
"Bad news equals good news, good news equals bad news," said Vincent Reinhart, chief economist at Dreyfus-Mellon. "What investors are most worried about is the Fed's austerity policy. Bad news about the economy means the Fed will reduce its austerity policy."
Wage pressure is "still very large"
In addition to the overall employment data, investors will also pay close attention to wage growth.
The market expects the average hourly wage in the United States to increase by 5.1% year-on-year in September, which shows that wage pressure is "still very large". "The market may want to reconsider its optimistic view of Fed policy," said Beth Ann Bovino, chief analyst at the S&P Global rating. "The Fed is planning to take a radical stance. Higher wage data will only strengthen their stance."
Average hourly wage growth in the U.S.
Remarks in recent days show that Fed officials still believe that slowing inflation is the most important and are willing to sacrifice economic growth to achieve this goal.
2023 FOMC voter, Minneapolis Fed Chairman Kashkali said on Thursday: "I want Americans to make more money. I want every family to have more money to buy food. But this must be consistent with a stable economy, 2% inflation growth." "For an economy with an inflation rate of 2%, wage growth is higher than expected. This makes me a little worried."
Similarly, Atlanta Fed Chairman Bostic said Wednesday that he believes the inflation war is "may be still in its early stages" and is evidenced by the still tight job markets. Fed official Lisa Cook said on Thursday that she still believes inflation is too high and expects a "continuous rate hike" is necessary.
However, some investors have recently worried that the Fed may raise interest rates excessively, as some indicators in recent days show that inflationary pressure has eased.
American Supply Management Association reported on Wednesday that its September survey showed that price expectations were near the lowest level since the early stages of the epidemic.
The U.S. Department of Labor recently released data showed that long-distance trucking prices fell 1.5% month-on-month in August, well below the record high in January, although it was still up nearly 22% from a year ago.
Employment Data Company Challenger reported on Thursday that the number of layoffs by U.S. employers in September increased by 46% month-on-month and 68% year-on-year. U.S. recruitment intentions fell to their lowest level since 2011 in September. In addition, the U.S. Department of Labor reported Tuesday that job vacancies decreased by 1.1 million in August.
Recession approaches
Nevertheless, the Fed may continue to raise interest rates, and the possibility of the economy falling into a recession is rising.
"The Fed has made the mistake of not taking action before inflation rises. So if the inflation problem is to be resolved, it must redouble its efforts," Reinhart said. "The recession is inevitable. The Fed's policy may make things worse. But the Fed's policy mistake happened earlier, not now."
"The Fed will continue to raise rates until the labor market collapses. For us, this means the Fed believes that job growth has slowed down and unemployment is rising," said Meghan Swiber, interest rate strategist at Bank of America .
However, Shannon Saccocia, chief investment officer of SVB Private Bank, believes that the Fed is very concerned about inflation data and that Friday's employment data may not matter. She believes that the CPI data to be released next week may have a greater impact on the shift in the Fed's policy."Wages are embedded in the cost structure, and that will not change. The Fed may pay more attention to food and housing prices because when it comes to wages, the only thing they can do now is to stabilize it at the current level." Any boost to the market by the employment data may be temporary.
