Event:
On July 5, 2024, the US Department of Labor released non farm payroll data for June 2024: 206000 new non farm jobs were added, with an expected 190000. The previous value decreased from 272000 to 218000; The unemployment rate is 4.1%, expected to be 4.0%, with a previous value of 4.0%; The average hourly wage increased by 3.9% year-on-year, with an expected increase of 3.9% and a previous increase of 4.1%.
Core viewpoint:
In June, the unemployment rate in the United States further increased, and the year-on-year growth rate of wages slowed down, indicating a cooling of the job market. On the one hand, in terms of new employment, the non-agricultural employment population increased by 206000 people in June, which is lower than the previous increase of 218000 people. The retail industry, leisure and hotel industry, professional and commercial service industry are the main drag. On the other hand, the rise in unemployment rate and the decline in year-on-year salary growth rate once again highlight the cooling trend of the US job market, with the unemployment rate increasing from 4.0% to 4.1% from the previous value, and the year-on-year salary growth rate slowing down from+4.1% to+3.9% from the previous value.
Will the US job market accelerate its deterioration as the unemployment rate in June climbed above expectations to 4.1%? We believe that despite a series of recent data showing a slowdown in the US economy, the US fiscal policy remains loose in 2024, sufficient to support the economy and will not cause a recession, and the US job market will not deteriorate sharply. In addition, from an election perspective, under the pressure of the election situation, the Biden administration's motivation to "stabilize employment" has increased. We tend to believe that Biden will use fiscal efforts to drive government employment, or use statistical methods to ensure that the US unemployment rate does not rise significantly this year and maintain employment at a relatively stable level.
The decline in new non-agricultural employment is mainly dragged down by the retail industry, leisure and hotel industry, and professional and commercial services industry
（1） Leisure and hotel industry: The retail industry added 0.9000 jobs (previous value+07000 people), while the leisure and hotel industry added 0.7000 people (previous value+22000 people), indicating a cooling of consumption; （2） Professional and commercial services: 17000 new jobs were added (previous value+31000), including 44000 new jobs in administrative and support services (previous value -99000) and 46000 new jobs in employment services (previous value -20000); （3） Construction industry: added employment of 27000 people, higher than the previous value of 16000 people, which is the highlight of June's employment data.
The labor participation rate has rebounded, and the unemployment rate is higher than market expectations
In June 2024, the labor participation rate increased by 0.1 percentage points month on month, and the employment willingness of the middle-aged and young people aged 25 to 34 has rebounded. From the perspective of the unemployed population, the number of unemployed people increased by 162000 in June, higher than the previous value of 157000, driving the unemployment rate to exceed expectations and rise to 4.1%. In addition, the U6 unemployment rate in June (=(total unemployment+number of people choosing part-time jobs due to economic reasons)/number of labor force) remained unchanged at 7.4% in May, the highest value since the beginning of this year, indicating that the unemployment rate in the part-time market remains high.
Considering the further increase in unemployment rate in June and the decline in year-on-year salary growth rate, service industry inflation is expected to ease, and the probability of the Federal Reserve cutting interest rates in September increases
We believe that on the one hand, the June unemployment rate further rose to 4.1%, indicating intensified competition in the US job market. At the May FOMC meeting, Powell stated that an "unexpected" deterioration in the labor market could lead to early interest rate cuts. On the other hand, taking into account the decline in US service industry PMI, private enterprise ADP employment, and the slowdown in year-on-year salary growth, the probability of a rate cut in September has increased.
According to the CME Fedbatch tool, after the release of non farm payroll data in June, the market expects the first interest rate cut this year to be in September, with a probability of 71.8%, higher than the previous trading day's 68.4%. It is expected to cut interest rates twice within the year, with the second time in December, with a probability of 47.8%.
Risk warning: The US economy has fallen beyond expectations; The geopolitical situation has evolved beyond expectations.