Author: Gao Ruidong and Zhou Xinping (Gao Ruidong is Chief Economist of Everbright Securities and member of China Chief Economist Forum)
Key takeaways
Event:
On September 6, 2024, the United States Department of Labor released the United States non-farm payrolls data for August 2024: 142,000 new non-farm payrolls, expected 160,000, the previous value revised down from 114,000 to 89,000; unemployment rate 4.2%, expected 4.2%, previous value 4.3%; Average hourly earnings rose 3.8% year-on-year, with an expected increase of 3.7% and a previous increase of 3.6%.
Key takeaways:
United States employment data for August was mixed, with the unemployment rate falling but job creation falling less than expected. On the one hand, from the perspective of new jobs, 142,000 new jobs were added, higher than the previous value (+89,000), but lower than the market expectation of an increase of 160,000, mainly due to the slowdown in manufacturing employment, which is corroborated by the recent relatively sluggish manufacturing PMI data. On the other hand, the decline in the unemployment rate and the rebound in year-on-year wage growth point to the lack of sharp deterioration in the United States job market, in which the unemployment rate fell to 4.2% from the previous value of 4.3%, and the year-on-year wage growth rate rose to +3.8% from the previous value of +3.6%.
From the pace of interest rate cuts, the unemployment rate in United States fell in August, and the rate of new jobs was less than expected, and the September rate cut was already the benchmark situation, but the mixed employment data also meant that the rate cut was not clear. After the release of the data, New York Fed President Williams said that "now is the right time to cut interest rates" and did not say anything about the size of the rate cut. Therefore, before the September 18 interest rate meeting, it is still necessary to pay attention to United States inflation, initial jobless claims, consumer confidence and retail sales data.
The new non-farm payrolls were less than expected, manufacturing employment was the main drag, and employment in the construction industry, financial services industry, leisure and hotel industry picked up.
(1) Manufacturing: -24,000 new jobs (previous value +06,000), which is the main drag on the non-farm data, and the United States ISM manufacturing PMI in August was lower than expected. (2) Construction industry and financial industry: more sensitive to interest rates, demand picked up, financial services industry added +11,000 jobs (previous value -1,000), construction industry new jobs +34,000 (previous value +13,000). (3) Leisure and hospitality: +46,000 new jobs (previous value +24,000), which was the highlight in the August employment data.
The labor force participation rate was the same as in July, the employment willingness of the middle-aged and elderly groups rebounded, and the unemployment rate fell slightly.
The labor force participation rate in August 2024 was unchanged from July 2024, and the employment willingness of middle-aged groups represented by 35 to 44 years old and elderly groups over 55 years old rebounded. In terms of the number of unemployed, the number of unemployed decreased by 48,000 in August, compared with an increase of 352,000 in the previous month, driving the unemployment rate back to 4.2%. In addition, the U6 unemployment rate (= (total number of unemployed + number of people who choose part-time jobs for economic reasons) / number of people in the labor force) in August was the highest value this year at 7.9% from 7.8% in July, indicating that the part-time market is still relatively weak.
The September rate cut is already the benchmark scenario, but the magnitude of the cut is unclear given the mixed employment data.
The September rate cut was already the benchmark United States September rate cut was the benchmark the unemployment rate fell and the rate of creation was less than expected, but the mixed employment data also meant that the magnitude of the rate cut was uncertain. After the release of the data, New York Fed President Williams said that "now is the right time to cut rates", but did not say anything about the size of the cut. Therefore, before the September 18 interest rate meeting, it is still necessary to pay attention to United States inflation, initial jobless claims, consumer confidence and retail sales data.
CME Fedwatch tool shows that after the release of the non-farm payrolls data in August, the market expects the first interest rate cut this year to be in September, with a probability of 50 bps of interest rate cuts of 30.0%, and it is expected that three interest rate cuts will be made in succession during the year, and the remaining two will be in November and December, and the probability of 50 bps of interest rate cuts will be 54.6% and 42.3% respectively.
Risk warning: United States economy fell more than expected; The geopolitical situation has evolved more than expected.
First, the non-farm data driven by the cooling of manufacturing employment was less than expected
Event:
On September 6, 2024, the United States Department of Labor released the August non-farm payrolls data:
[1] The new non-farm payrolls were 142,000, expected to be 160,000, and the previous value was revised down from 114,000 to 89,000;
[2] The unemployment rate in August was 4.2%, expected 4.2%, and the previous value was 4.3%;
[3] Average hourly earnings rose 3.8% year-on-year, with an expected increase of 3.7% and a previous increase of 3.6%.
Market Reaction:
On September 6, U.S. stock indexes fell sharply, with the Dow, S&P 500 and Nasdaq falling 1.0%, 1.7% and 2.6% respectively. The yield on the 10-year Treasury note fell 1bp to 3.72%, and the yield on the 2-year Treasury note fell 9bp to 3.66%.
Key takeaways:
United States employment data for August was mixed, with the unemployment rate falling but job creation falling less than expected. On the one hand, from the perspective of new jobs, 142,000 new jobs were added, higher than the previous value (+89,000), but lower than the market expectation of an increase of 160,000, mainly due to the slowdown in manufacturing employment, which is corroborated by the recent relatively sluggish manufacturing PMI data. On the other hand, the decline in the unemployment rate and the rebound in year-on-year wage growth point to the lack of sharp deterioration in the United States job market, in which the unemployment rate fell to 4.2% from the previous value of 4.3%, and the year-on-year wage growth rate rose to +3.8% from the previous value of +3.6%.
From the pace of interest rate cuts, the unemployment rate in United States fell in August, and the rate of new jobs was less than expected, and the September rate cut was already the benchmark situation, but the mixed employment data also meant that the rate cut was not clear. After the release of the data, New York Fed President Williams said that "now is the right time to cut rates", but did not say anything about the size of the cut. Therefore, before the September 18 interest rate meeting, it is still necessary to pay attention to United States inflation, initial jobless claims, consumer confidence and retail sales data.
1.1 The United States unemployment rate eased slightly in August, but manufacturing job creation slowed
The United States unemployment rate eased slightly in August, but manufacturing employment slowed, resulting in weaker-than-expected job creations. On the one hand, from the perspective of the scale of new jobs, the number of non-farm payrolls increased by 142,000 in August, lower than the market expectation of an increase of 160,000, but higher than the previous value of an increase of 89,000 (the revised data was an increase of 114,000), of which the new employment in the manufacturing industry slowed down, turning negative to -24,000. On the other hand, the decline in the unemployment rate and the year-on-year recovery in wage growth also show that the United States job market has not deteriorated significantly, and the probability of recession is still relatively limited, of which the unemployment rate fell to 4.2% from the previous value of 4.3%, and the year-on-year wage growth rate rose to +3.8% from the previous value of +3.6%.
Previously, we pointed out in our August 3, 2024 report "United States employment has cooled sharply, and the conditions for interest rate cuts have been met - United States non-farm data review in July 2024 and Everbright Macro Weekly Report (2024-08-03)" pointed out that under the current situation of high interest rate cut expectations and the 10-year US Treasury interest rate has fallen below 4%, the easing of interest rate conditions will help the United States economy recover moderately, and the job market will not deteriorate sharply. Correspondingly, the employment data for August showed that the unemployment rate eased to 4.2% from 4.3% in July, confirming our previous view.
From the pace of interest rate cuts, the unemployment rate in United States fell in August, and the rate of new jobs was less than expected, and the September rate cut was already the benchmark situation, but the mixed employment data also meant that the rate cut was not clear. After the release of the data, New York Fed President Williams said that "now is the right time to cut rates", but did not say anything about the size of the cut. Therefore, before the September 18 interest rate meeting, it is still necessary to pay attention to United States inflation data (September 11, referring to the release date, the same below), initial jobless claims (September 12), consumer confidence index (September 13) and retail sales data (September 17).
1.2 New non-farm payrolls rebounded, with employment in the construction, financial services, leisure and hotel industries being the main contributors
Non-farm payrolls increased by 142,000 in August, lower than market expectations of an increase of 160,000, but higher than the previous increase of 89,000. In terms of industries, new jobs in the commodity production sector fell, of which the construction industry added +34,000 jobs, up from the previous value (+13,000), but the manufacturing industry added -24,000 jobs, down significantly from the previous value (+6,000). New jobs in the service sector picked up, rising to +108,000, up from +54,000 in the previous month. Compared with July 2024, the new employment in the financial services industry, leisure and hotel industry and other service industries has rebounded significantly.
First, the manufacturing industry added -24,000 jobs (previous value +6,000), which was the main drag on the non-farm data. In terms of sub-items, the new jobs in the automobile and parts industry were -6,000 (the previous value was +06,000), the new jobs in the chemical manufacturing industry were -02,000 (the previous value was +02,000), and the new jobs in the electrical equipment manufacturing industry were -04,000 (the previous value was -01,000), which was confirmed by the lower-than-expected ISM manufacturing PMI in United States in August.
Second, with the decline in U.S. bond interest rates, new jobs in the construction and financial industries, which are more sensitive to interest rates, have picked up. On the one hand, the financial services industry added +11,000 jobs (previous value -01,000), pointing to a recovery in demand for related services as the United States interest rate cut cycle is about to begin. On the other hand, the construction industry added +34,000 jobs (previous value +13,000), pointing to the recovery of expansion demand of real estate companies that are more sensitive to interest rates in the case of United States United States mortgage interest rate fall, and construction spending has increased, and it is expected that the growth rate of residential investment will continue to rise in the second half of the year, supporting the soft landing of the economy.
Thirdly, leisure and hospitality added +46,000 jobs, up from +24,000 in the previous month, which was the bright spot in the August employment data. The United States unemployment rate was 4.2% in August, down slightly from 4.3% in July and at the highest level this year, and the market's fears of a recession in the United States have not dissipated. However, from the service consumption employment data, United States consumption resilience is still strong, at the same time, the year-on-year wage growth rate in August rose to +3.8% from the previous value of +3.6%, and the income side of residents is still healthy, which means that the subsequent manufacturing PMI and unemployment rate will have relatively limited space, and the economy will have a softer landing rather than a recession.
1.3 The labor force participation rate was unchanged from July, and the unemployment rate fell slightly
The labor force participation rate in August 2024 was the same as that in July, and the employment willingness of middle-aged and elderly groups rebounded. The labor force participation rate was 62.6% in June 2024 and climbed to 62.7% in July-August. From a structural point of view, the United States ushered in the beginning of the school season in August, and the labor participation rate of young people aged 16 to 19 fell by 0.7 percentage points month-on-month, the labor participation rate of young people aged 20 to 24 fell by 0.8 percentage points month-on-month, and the labor participation rate of young and middle-aged people represented by 25 to 34 years old fell by 0.5 percentage points month-on-month. The participation rate of middle-aged and elderly groups rebounded, and the labor participation rate of middle-aged groups represented by 35 to 44 years old and elderly groups over 55 years old both increased by 0.3 percentage points month-on-month.
The unemployment rate was 4.2% in August 2024, a slight decline from 4.3% in July, in line with market expectations. The number of people in the labor force increased by 120,000 in August compared to July, of which the number of employed people increased by 168,000 (the previous value increased by 67,000) and the number of unemployed people decreased by 48,000 (the previous value increased by 352,000). The decrease in the number of unemployed people from July drove the U3 unemployment rate (= number of unemployed / number of people in the labor force) to 4.2% in August. However, the U6 unemployment rate (= (total number of unemployed + number of people who choose part-time jobs for economic reasons) / number of people in the labor force) in August was higher than 7.8% in July, recording 7.9%, the highest value this year, indicating that the part-time market is still relatively weak.
1.4 The year-on-year growth rate of wages rebounded, and household consumption was still supported
The year-on-year growth rate of hourly earnings in August 2024 rebounded from July, indicating that household consumption is still supported. Among them, on a month-on-month basis, hourly earnings grew by +0.4% in August, up from +0.2% in July. On a year-on-year basis, hourly earnings in August increased by 3.8% year-on-year, also higher than the previous value (+3.6%), pointing to the fact that United States consumption is still strong and the economy is more soft than recessionary. By sector, hourly earnings in goods production rose to +0.3% in August, unchanged from the previous month, while hourly earnings in private services rose to +0.4% from +0.2% in July.
Overall, the conditions for the Fed to cut interest rates in September have been met, but it remains to be seen whether it will cut rates by a single 50 bps this year. According to the CME Fedwatch tool, after the release of the non-farm payrolls data in August, the market expects the first interest rate cut this year to be in September, with a probability of 50 bps of interest rate cuts of 30.0%, and it is expected that three consecutive interest rate cuts will be made within the year, and the remaining two will be in November and December, and the probability of 50 bps of consecutive interest rate cuts will be 54.6% and 42.3% respectively.
2. Global Observations
2.1 Financial and liquidity data: United States 10-year Treasury yields declined
United States 10-year Treasury yields fell. As of September 6, the yield on the 10-year United States Treasury closed at 3.72%, down 19BP from the end of last week (August 30, the same below), and the inflation expectations implied by the 10-year Treasury bond were down 12BP from the end of last week at 2.03%. As of September 6, the yields on 10-year government bonds of France and Germany fell by 13 bps and 10 bps to 2.88% and 2.20% from the end of last week. As of September 4, the yield on United Kingdom 10-year government bonds fell 7 bps from the end of last week to 3.93%; As of September 5, Japan's 10-year government bond yield was down 2 bps from the end of last week to 0.90%.
United States 10-year and 2-year Treasury maturity spreads narrowed from the end of last week, ending the inversion. As of September 6, the spread between the 10-year and 2-year Treasury bonds in United States was 0.06%, narrowing by 6 bps from last week. As of September 5, United States AAA-rated corporate option adjusted spreads rose 3BP from the end of last week to 0.40%, and United States high-yield bond option adjusted spreads rose 16BP from the end of last week to 3.29%.
2.2 Global Markets: Commodities and global equities were weak
Commodities were weak. In terms of industrial products, DCE coking coal, DCE coke and LME aluminum fell by 10.1%, 10.0% and 4.3% respectively. In terms of crude oil, ICE oil and NYMEX gasoline fell 7.2% and 9.4%, respectively. In terms of precious metals, COMEX silver and COMEX gold fell 3.3% and 0.4% respectively. In terms of agricultural products, CBOT wheat, CBOT corn and CBOT soybeans rose 2.7%, 1.2% and 0.6%, respectively.
Global stock markets fell more than they rose. In United States, the Dow Jones Industrial Average, S&P 500 and Nasdaq fell 2.9%, 4.2% and 5.8%, respectively. In Asian stocks, the Shanghai Composite Index, Korea Composite Index and Nikkei 225 fell 2.7%, 4.9% and 5.8%, respectively. In European equities, Italy's FTSE MIB, Germany's DAX and France's CAC40 fell 3.1%, 3.2% and 3.7%, respectively, while New Zealand's S&P 50 rose 1.3%.
2.3 Central Bank Observation: The Fed is likely to cut interest rates in September
Fed member Williams said it was the right time for the Fed to cut interest rates, but did not comment on the exact size of the cut. On 6 September, New York Fed President Williams said that it was appropriate for the Fed to cut rates now given the progress made in reducing inflation and cooling the job market, but did not disclose the magnitude of the central bank's first rate cut. Over time, he said, it depends on the evolution of the data, the outlook and the risk of achieving the central bank's goals.
Former Japan Bank Governor Haruhiko Kuroda has hinted that Japan has a lot of room to raise interest rates. On September 6, former Bank of Japan Governor Haruhiko Kuroda offered his views on Japan's neutral interest rate, suggesting that there is a lot of room for rate hikes in the process of policy normalization.
ECB Governing Council member Villeroy supports the ECB's interest rate cut in September. On August 31, ECB Governing Council member and France Bank President Villeroy supported the ECB's September rate cut, "In my opinion, our September 12 meeting should take action and decide that another rate cut will be reasonable and wise." ”
2.4 Overseas news: The United States announced new control measures for advanced technologies such as quantum computers
Mass protests broke out in Israel after the killing of six hostages in Gaza. On September 2, massive protests broke out in Israel over the death of six hostages in Gaza, dissatisfied with the Israel leadership's failure to reach a ceasefire agreement to release Israel prisoners, and demanded that Prime Minister Benjamin Netanyahu take more steps to bring the remaining 101 hostages home.
United States senior climate diplomat Podesta visited China from September 4 to 6. John · Podesta, senior adviser to the President of United States on international climate policy, visited China September 4-6 to discuss climate change.
The United States unveiled new controls for advanced technologies such as quantum computers. On September 6, the United States unveiled new controls on advanced technologies, including quantum computers, to complement similar restrictions imposed by international allies. According to the communiqué, in addition to quantum computing projects, these regulatory measures will also affect equipment for the production of advanced semiconductors, additive manufacturing projects for the production of metal parts, and fully circumferential gate field-effect transistors (GAAFET).
The Germany government is drafting new regulations on Temu and Shein, among others. On September 6, Germany financial magazine Capital reported that the German government is drafting new regulations to ensure that Chinese discount retailers such as Temu and Shein comply with standards and regulations on product safety, environmental protection, consumer rights, and customs and tax laws.
3. Domestic observation
3.1 Upstream: Crude oil and copper prices fell month-on-month
Crude oil prices fell month-on-month. Since September 2024, WTI crude oil prices have fallen by 8.41% month-on-month, an increase of 2.14 percentage points compared with the previous month, and the latest monthly average price is $69.09 per barrel; Brent crude oil prices fell 6.76% month-on-month, 0.79 percentage points wider than the previous month, and the latest monthly average price was $73.54 per barrel.
Copper prices fell month-on-month, while inventories rose year-on-year. Since September 2024, copper prices have fallen by 0.38% month-on-month, a decrease of 4.2 percentage points compared with the previous month, and inventories have increased by 122.07% year-on-year, a decrease of 115.52 percentage points compared with the previous month.
3.2 Midstream: cement price index and rebar prices fell month-on-month
The cement price index fell month-on-month. Since September 2024, the national cement price index has fallen by 1.35% month-on-month, a decrease of 0.75 percentage points compared with the previous month. The month-on-month growth rates of the price indices in North China, Northeast China, East China, Central South, Northwest and Southwest China were -1.5%, +0.78%, -1.48%, -0.77%, -0.03% and -5.17% respectively.
Rebar prices fell month-on-month, narrowing the decline from the previous month. Since September 2024, the price of rebar has fallen by 0.75% month-on-month, a decrease of 6.51 percentage points compared with the previous month.
3.3 Downstream: The transaction area of commercial housing fell year-on-year, and food prices rose month-on-month
The transaction area of commercial housing fell year-on-year. Since September 2024, the transaction area of commercial housing has decreased by 34.97% year-on-year, an increase of 15.34 percentage points compared with the previous month. Among them, the year-on-year growth rate of commercial housing transaction area in first-, second-, and third-tier cities was -37.2%, -42.1%, and -6.37%, respectively, and the year-on-year changes were -43.73, -6.3, and +14.59 percentage points respectively compared with the previous month.
Pig prices, vegetable prices, and fruit prices rose month-on-month, but the growth rate narrowed. Since September 2024, pork prices have increased by 1.32% month-on-month to 27.27 yuan/kg, a decrease of 7.28 percentage points compared with the previous month. The price of vegetables rose by 3.56% month-on-month to 6.04 yuan/kg, a decrease of 18.14 percentage points compared with the previous month. Fruit prices rose 0.18% month-on-month to 7.35 yuan/kg, a decrease of 1.83 percentage points from the previous month.
3.4 Liquidity: Except for DR007, money market interest rates are on the rise, and bond market interest rates are on the downside
With the exception of DR007, money market interest rates are on the rise and bond market rates are on the downside. Since September 2024, R001 has risen 17bp to 1.83% from the end of the previous month, R007 has risen 3bp to 1.87% from the end of the previous month, DR001 has risen 19bp to 1.72% from the end of the previous month, and DR007 has fallen 1bp to 1.69% from the end of the previous month. The interest rate on one-year government bonds fell 5bp from the end of last month to 1.44%, the interest rate on 10-year treasury bonds fell 3bp to 2.14% from the end of last month, the interest rate on one-year AAA+ corporate bonds fell 5bp to 1.94% from the end of last month, and the interest rate on 10-year AAA+ corporate bonds fell 6bp to 2.37% from the end of last month.
3.5 Domestic news: The summit of the Forum on China-Africa Cooperation (FOCAC) has closed
The General Office of the State Council of China issued a document stating that it is necessary to establish and improve the negative list management system for cross-border trade in services. On September 3, the General Office of the State Council of China issued a document stating that it is necessary to establish and improve the negative list management system for cross-border trade in services, take the initiative to align with international high-standard economic and trade rules such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and steadily promote the gradient opening up of cross-border trade in services across the country.
Chinese Vice Premier Zhang Guoqing investigates the development of high-tech industries in Chongqing. When investigating the development of high-tech industries in Chongqing, Zhang Guoqing, Vice Premier of the State Council of the People's Republic of China, emphasized that it is important to lead industrial innovation with scientific and technological innovation and accelerate the development and expansion of high-tech industries. It is also necessary to develop high-tech industries in the light of local conditions, promote the rational distribution of regions, and prevent low-level redundant construction and vicious competition of the "involution type."
The United States will send a higher-level delegation to the Xiangshan Forum in China. On September 5, Reuters reported that United States Deputy Assistant Secretary of Defense Michael Chase will attend the China Fragrant Hills Forum in mid-September, a higher rank than United States officials who attended last year's Fragrant Hills Forum, suggesting that the United States military wants to engage more deeply with China at the working level amid regional disputes and increased deployments in East Asia.
The summit of the Forum on China-Africa Cooperation (FOCAC) has concluded. On September 6, the 2024 FOCAC Summit concluded in Beijing, and the two sides adopted two important documents to strengthen China-Africa cooperation in the next three years: the Beijing Declaration on Building an All-Weather China-Africa Community with a Shared Future in the New Era and the Beijing Action Plan of the Forum on China-Africa Cooperation (2025-2027), in order to promote the implementation of the "Ten Partnership Actions", China is willing to provide 360 billion yuan of financial support in the next three years.
Fourth, next week's economic calendar