Global markets brace for crucial US jobs figures
All eyes on Washington: Jerome Powell has already indicated that the time is ripe for rate cuts
Fears of a slowdown in the world’s largest economy are taking center stage this week as the latest U.S. jobs figures are released.
Markets will be on tenterhooks ahead of August’s nonfarm employment figures, due to be released on Friday.
This follows a worse-than-expected reading the previous month, which led to a global stock sell-off.
Those concerns have since subsided somewhat, but a new batch of disappointing figures could increase concerns about a looming recession in the US.
The implications of this could be felt globally as investors gauge the impact on US interest rates and the election battle between Kamala Harris and Donald Trump.
Economists expect Friday’s figures to show 163,000 jobs were created in August and the country’s unemployment rate to fall to 4.2 percent from 4.3 percent.
If employment numbers disappoint or unemployment numbers are higher, there is speculation that the Federal Reserve, the US central bank, will have to take drastic measures.
Markets are already confident that the Fed will cut rates for the first time since 2020 when it meets later this month.
Traders believe a quarter-point rate cut is most likely, but see a one-in-three chance of a jumbo half-point move. The latter looks increasingly likely as employment data points to a downturn.
Fed Chairman Jerome Powell has already made it clear that a weaker labor market is on the back of the rate-setting Federal Open Market Committee’s (FOMC) mind, as he all but confirmed that some kind of cut is coming. Powell told an audience of central bankers last month that “the time has come” to make a move.
In recent weeks, data on the health of the US economy has been mixed.
Official figures last week were revised upward to show that gross domestic product grew at an annual rate of 3 percent in the second quarter, up from an initial estimate of 2.8 percent. And separate weekly data showed that the number of Americans filing new claims for unemployment benefits fell. That will have bolstered hopes that the U.S. economy is experiencing a “soft landing,” where falling inflation does not accompany a downturn. But America’s unemployment rate has risen sharply, from 3.7 percent in January to 4.3 percent in July.
And a shock update last month revealed that 818,000 fewer jobs had been created in the year to March than previously thought. It was described by Trump as a “massive scandal”. Investec economist Philip Shaw said: “US unemployment has risen at a rate that has raised fears of a recession.”
Shaw said that while the numbers are not yet “flashing red,” further significant deterioration in the labor market could lead to ratemakers making more aggressive rate cuts.
He added that the upcoming employment numbers “will be critical in shaping not only expectations for Fed policy, but also the extent to which the US economy shows signs of slowing.”
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