NONFARM PAYROLLS FORECAST: US LABOR MARKET EXPECTED TO SHOW FURTHER SIGNS OF COOLING IN AUGUST

US Nonfarm Payrolls are expected to increase by 170K in August, slowing from the 187K reported in July.

The headline NFP and Average Hourly Earnings could impact the Fed’s future policy.

The Unemployment Rate in the United States is seen steady at 3.5% in August.

Traders scale back the odds of a final interest-rate hike by the US Federal Reserve (Fed) this year after US job openings dipped to levels unseen since early 2021. The US JOLTS Job Openings data revived bets of a Fed pause on rates and triggered an extended US Dollar correction from 12-week highs set last Friday.

The highly anticipated Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday was perceived as hawkish. Powell’s commentary hinted at one more rate hike this year, reinforcing the narrative of ‘higher rates for longer’. The US Dollar Index rallied hard on his hawkish rhetoric and tested the key 104.50 level.

Following Powell’s speech, the odds for a November Fed rate hike spiked up to roughly 57%. This probability has fallen to 40%, in the face of the disappointing US jobs data, according to data from the CME Group’s FedWatch Tool.

What to expect in the next Nonfarm Payrolls report?

Attention turns toward Friday’s critical United States (US) jobs data for August. The key employment statistics will confirm whether labor market conditions are loosening up amid concerns over a likely ‘hard landing’.

The Nonfarm Payrolls data is expected to show that the US economy added 170K jobs in the eighth month of the year, compared with a job gain of 187K jobs reported in July. The Unemployment Rate is likely to hold steady at 3.5% in the reported period.

The focus will also be on Average Hourly Earnings, a measure of wage inflation, which could have a strong influence on the Fed’s interest rate path. The Average Hourly Earnings are seen rising 4.4% on a yearly basis in August, at the same pace seen in July. The monthly Average Hourly Earnings is set to increase 0.3% in August compared with a 0.4% growth in July.

ADP on Wednesday reported that the US private sector added 177,000 jobs in August, well below the revised total of 371,000 added in July. US Q2 GDP growth was revised down to a 2.1% annual rate from 2.4% seen in the preliminary reading. 

Analysts at TD Securities noted, “payrolls likely posted another sub-200k gain in August, remaining in the vicinity of the Jun-Jul gains. The August increase would maintain the downtrend in the three-month pace, barring any major revisions. We also look for the UE rate to stay unchanged at 3.5%, following its second consecutive decline in July. We also expect wage growth to print 0.3% m/m (4.3% y/y).”