The upcoming July US jobs report is poised to cap off a busy week for markets. Following June’s indication of a cooling job market, the July data is expected to continue this trend, further solidifying the case for a Federal Reserve (Fed) interest rate cut in September.
Expectations for non-farm payrolls
Analysts anticipate payrolls to have increased by approximately 178,000 in July, just below June’s 206,000 gain and in line with the recent three-month average of 177,000. This figure, while still positive, represents a continued deceleration in job creation compared to the ‘breakeven’ pace of around 250,000 required to keep up with labour force growth.
Potential risks and influencing factors
Several factors may influence the July report, potentially skewing the numbers lower than consensus estimates. Hurricane Beryl, which made landfall during the survey week, could have a negative impact, particularly on the establishment survey. Additionally, the National Federation of Independent Business (NFIB) hiring intentions survey, which has been a reliable indicator this cycle, points to job growth at the lower end of forecasts, around 100,000.
Wage growth and unemployment expectations
Average hourly earnings are expected to maintain a 0.3% month-over-month (MoM) increase, with the annual rate cooling to 3.7% due to base effects. This moderation in wage growth would likely be viewed favourably by the Fed.
Implications for monetary policy
While the July jobs report is unlikely to dramatically alter the Fed’s policy trajectory, it will play a crucial role in cementing expectations for a September rate cut. The report’s various components, particularly wage growth and overall job creation, will be closely scrutinised for signs of continued labour market normalization.
Market impact and dollar outlook
The jobs report is anticipated to be a significant volatility event for financial markets. Traders are likely to interpret the data through the lens of longer-term Fed policy, potentially leading to the US dollar strengthening if current aggressive rate cut expectations are tempered. With over 65 basis points of cuts priced in by year-end, there’s room for market expectations to align more closely with a more measured Fed approach.
