Non-farm payrolls
Column: In this issue, we focus on the impact of new immigration on labor supply and the rebound in unemployment under the high immigration projections of the United States Congressional Budget Office (CBO). We estimate that the return of labor due to new immigrants will roughly explain the 0.03%-0.06% increase in the unemployment rate in this employment report. In addition to immigration, temporary unemployment caused by bad weather and other factors may also be an important reason for the rebound in the unemployment rate.
Non-farm payrolls were added by 114,000 in July, lower than market expectations of 175,000 and revised down to 179,000 from 206,000. The unemployment rate was 4.3%, higher than the previous value and market expectations of 4.1%. The growth rate of hourly earnings was 0.2% month-on-month, lower than market expectations and the previous value of 0.3%; The year-on-year growth rate was 3.6%, lower than the market expectation of 3.7% and the previous value of 3.8%. The labor force participation rate was 62.7%, higher than market expectations and the previous value of 62.6%. In July, the new non-farm payrolls and unemployment rates were both lower than expected, with demand falling while supply returned, and temporary unemployment rebounded sharply to push up the unemployment rate. While market expectations of interest rate cuts have risen significantly, the "recession trade" continues.
Column: How much does immigration explain the rebound in unemployment?
According to the current projections of the Congressional Budget Office (CBO) in the United States (where the forecast of net migration is different, in 2023 and 2024, the CBO net migration projection is higher than that of the rest of the agencies, so the CBO projection is selected for calculation to predict the increase in unemployment in the case of high immigration), the net number of immigrants to United States will reach 3.3 million in 2024 and will be reached in 2025.United States 2.6 million people, 1.8 million in 2026, and an average of 1.1 million people per year between 2027 and 2054. If the current migrant labor force participation rate of 67.3% is calculated, the new migrant labor force in 2024 will be about 2.22 million. The total number of new non-farm payrolls in 2024 currently stands at 1.42 million, and according to the Congressional Budget Office's immigration level, the total number of new nonfarm payrolls for the rest of the year needs to reach at least 800,000, or an average of about 160,000 per month, to make the immigrant labor force fully employed. The number of new non-farm payrolls in July was 114,000, with a gap of about 46,000, and the unemployment rate rose by about 0.03% based on the current total labor force of 170 million.
Assuming that we estimate more carefully, the majority of immigrants are engaged in the service industry, if we only estimate the cumulative number of new service jobs in the service industry in 2024, the total number of new service industry jobs is currently 1.3 million, and there is still a gap of about 920,000 people from the full employment of 2.22 million migrant laborers, that is, 184,000 new service industry jobs are needed every month to meet the requirements. Only 89,000 new jobs were created in the service sector in July, with a gap of about 95,000, and the unemployment rate was about 0.06% based on the current total labor force of 170 million. In summary, the increase in labor supply brought about by new immigrants can roughly explain the increase in the unemployment rate of 0.03%-0.06% in this employment report.
In addition, in addition to the immigration factor, the current rebound in the unemployment rate is mainly driven by temporary unemployment, which may be affected by short-term factors such as hurricanes, and whether new jobs will continue to decline in the future needs to be further observed.
Event: Falling employment in the service sector weighs on new jobs
Non-farm payrolls were added by 114,000 in July, lower than market expectations of 175,000 and revised down to 179,000 from 206,000. The unemployment rate was 4.3%, higher than the previous value and market expectations of 4.1%. The growth rate of hourly earnings was 0.2% month-on-month, lower than market expectations and the previous value of 0.3%; The year-on-year growth rate was 3.6%, lower than the market expectation of 3.7% and the previous value of 3.8%. The labor force participation rate was 62.7%, higher than market expectations and the previous value of 62.6%. In July, the new non-farm payrolls and unemployment rates were both lower than expected, with demand falling while supply returned, and temporary unemployment rebounded sharply to push up the unemployment rate. While market expectations of interest rate cuts have risen significantly, the "recession trade" continues.
In terms of asset performance, the U.S. dollar index fell sharply after the release of non-farm payrolls data; London gold fell sharply after a rapid upward movement, and then rebounded slightly; 2Y and 10Y Treasury yields fell rapidly; U.S. stock indexes are moving down rapidly. At the close, London Gold fell 0.1%, London Silver rose 0.11%, and the U.S. dollar index fell 1.07%. The 2Y U.S. Treasury yield fell by 27.3bp, and the 10Y U.S. Treasury yield fell by 18.4bp, and the U.S. Treasury curve continued to steepen.
After the release of the non-farm payrolls data, the CME "Fed Watch" showed that market expectations have fully priced in a 25bp rate cut in September, and the probability of a 50bp rate cut has risen to 69%, and a rate cut of 100-125bp is expected within the year.
Analysis of non-farm payrolls
Judging from the unemployment data, the sharp increase in temporary unemployment is the main reason for the increase in the unemployment rate this time. Hurricane Beryl hit Texas during the Employment Report survey week, leaving about 2.7 million homes and businesses in the Houston area without power for several days. Although the BLS stressed that "there was no significant impact on the data for the month", the number of people who were unable to go to work or work part-time due to bad weather reached the highest level on record in July, so it is impossible to tell whether the hurricane could interfere with this month's data. It remains to be seen whether temporary unemployment will translate into persistent unemployment.
Judging from the data of new jobs, the demand of the service industry and government departments fell significantly in July, but the growth rate of hourly wages in the service industry rebounded from the previous month. The private sector as a whole added 97,000 jobs, including 25,000 jobs in the production sector, a significant increase from the previous two months, and 72,000 new jobs in the service sector. 13,000 new jobs were created in the government sector. By industry, education and health care in the service sector contributed the most, with 57,000 new jobs. The largest decline was in the information industry, which reduced employment by 20,000 people. In terms of hourly wage growth, the highest month-on-month growth rate was in the information industry and other services, up 0.7%. The lowest month-on-month growth rate was mining, where hourly earnings fell by 0.2%. The information industry has turned negative in new jobs but has the highest growth rate in hourly wages, indicating that there may be a mismatch in employment within the industry.
The labor force participation rate rebounded to 62.7 percent in July, and the labor force participation rate for people over 55 years old rebounded to 38.3 percent. The labor force participation rate for people aged 25-54 rebounded to 84 percent, just 0.4 percent short of the all-time high of 84.4 percent, while the migrant labor force participation rate rose to 67.3 percent, driving the overall labor force participation rate back. The number of job openings recorded 8.18 million in June, beating market expectations of 8 million, and the labor gap narrowed to below 1.4 million. In terms of weekly data, the number of continuing jobless claims and initial jobless claims both rebounded, with initial jobless claims recording 249,000, beating expectations of 236,000.
Non-farm payrolls have fallen and the unemployment rate has rebounded, and the market is aggressively pricing in interest rate cut expectations. Looking at the smoothed data, the current three-month rolling cumulative unemployment rate change rebounded significantly to 0.22%, and the six-month average number of new non-farm payrolls fell back into the danger zone. Current labor market data support the Fed starting to cut interest rates, but the magnitude of the cuts remains to be seen.
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