What Do This Week’s Economic Data from the U.S. Mean? Will There Be an Interest Rate Hike?

While the August non-farm payrolls data from the US presented a strong picture in the headlines, analysts noted that when one-off effects are removed, the underlying growth in the job market remains much more limited. Non-farm employment increased by 162,000 in August, significantly exceeding the market expectation of 56,000. Data for previous months was also revised upwards by a total of 55,000, while the July employment change was updated from a 23,000 decrease to a 21,000 increase.

However, analysts noted that when the recovery in the entertainment and hospitality sectors and the temporary effects on public and education employment are excluded, core employment growth in August remained at around 60,000. This was interpreted as suggesting that the labor market may not be as strong as the headline data indicated.

According to the report, the unemployment rate remained stable at 4.1 percent in August, while the labor force participation rate rose to 61.6 percent. The broader U6 unemployment indicator fell from 7.9 percent to 7.7 percent. Analysts stated that the number of workers returning to the workforce continues to be met by companies’ hiring demands, and that there has been some improvement in the quality of employment.

On the other hand, the annual increase in average hourly wages fell from 3.2 percent to 3.1 percent, remaining below consumer inflation, which stood at 3.4 percent in July. This indicates that there is no renewed significant overheating in the labor market.

GF Securities stated that the August employment data weakened both extreme scenarios: “employment is collapsing” and “the labor market is overheating again.” According to the firm, the resilience of the employment market increased confidence that the economy could withstand further monetary tightening by the Fed, thus raising the likelihood of an interest rate hike later in the year. However, the August inflation data is expected to be the decisive factor in determining whether or not an interest rate hike will occur at the September meeting.

Following the release of the data, the probability of a Fed rate hike in September rose from 50% to 58.6%, according to the FedWatch indicator. The US 2-year Treasury yield increased by 4 basis points to 4.37%, while the 10-year Treasury yield rose by 1 basis point to 4.78%. Leading US stock indices closed the day with limited declines, while AI hardware and semiconductor stocks rallied. The SOXX ETF, which tracks the Philadelphia Semiconductor Index, rose 3%.

*This is not investment advice.