US August non-farm payrolls largely met expectations, unemployment rate rose, gold jumped nearly $10 before giving back half of its gains

　At 8:30 PM Beijing time on Friday, September 2, the United States released its August non-farm employment report, showing that job growth largely met expectations, but the unemployment rate rose. As of press time, spot gold rose $9.75 to $1714.78 per ounce before giving up half its gains.

Data showed that the US added 315,000 non-farm jobs in August, slightly higher than the expected 300,000, with the previous value revised up slightly to 528,000; the unemployment rate rose 0.2 percentage points to 3.70% compared to the previous value and the expected value; the annual wage rate remained flat at 5.20%, 0.1 percentage points below the expected value; the US labor participation rate in August was 62.40%, with the previous value and expected value being 62.10% and 62.20%, respectively.

　　With job growth of 315,000 and an unemployment rate of around 3.7%, the Federal Reserve will likely believe the job market can withstand more aggressive tightening. We expect US employment to slow as interest rate hikes dampen economic activity. As households seek to overcome the loss of real purchasing power, US labor participation may begin to rise.

　　So far, there is little sign that rising borrowing costs are cooling corporate labor demand. Job openings in July were as high as 11.2 million, with an average of two positions for every job seeker. Initial jobless claims in the US remain low.

　　The Institute for Supply Management (ISM)'s factory employment index rebounded in August after three consecutive months of decline. ISM comments show that "they continued to hire at a strong pace in August, with almost no signs of layoffs, hiring freezes, or reductions in staff through attrition."

　　Even with the contraction in GDP in the first half of the year, the US labor market remains robust, dispelling recession fears, which is an important reason why the Federal Reserve still needs to cool the market. Despite raising interest rates by 75 basis points twice in a row, the Federal Reserve is expected to continue this pace this month.

　　The Federal Reserve has raised interest rates from near-zero levels to the current range of 2.25% to 2.50% since March. Although falling commodity prices have slowed inflation, the annual consumer price index in August fell 0.6 percentage points from the previous value, but this is not enough for the Federal Reserve to conclude that inflation is truly beginning to fall.

　　Will Compernolle, senior economist at FHN Financial in New York, said: "The Fed really believes the labor market can withstand more aggressive tightening. In terms of the labor market, it's far from any pain."

　　Christopher Kayes, professor of management at the George Washington University School of Business, said: "Even if there is a recession, it will be mild. It will be a near-full-employment recession, something we haven't seen in our lifetime."

　　Small companies are bucking the trend

　　Other economists say that while large company layoffs have garnered media attention, small companies are hiring. They also believe that significant hiring is needed in the service sector, which was hit hard by the pandemic, to combat inflation.

　　Brian Bethune, professor of economics at Boston College, said: "(Small companies) are still catching up, and that's where it's completely bucking the trend. The more people businesses can hire, the more services they can provide, which means more production, faster inflation reduction. That's the key right now."

　　Matt Colyar, economist at Moody's Analytics, said: "Employers are still aggressively competing for and retaining employees as much as possible. The experience of the past year, the competitive labor market, and the rapidly changing business cycle have made businesses reluctant to mistreat workers."

　　Labor hoarding

　　But economists still expect job growth to slow, especially as worker productivity continues to decline at an unsustainable rate, putting upward pressure on labor costs. Weak productivity could also make it harder for the Federal Reserve to force inflation back down to its 2% target.

　　Economists attribute the tight labor market to businesses hoarding labor after experiencing difficulties over the past year, as the pandemic forced some people out of the workforce, partly due to long-term illnesses caused by infection, and the demand for workers in service industries such as restaurants and aviation has also been severely suppressed.

　　Conrad DeQuadros, senior economic advisor at Brean Capital in New York, said: "In our view, the extent of the decline in productivity is incredible. If productivity doesn't grow, this means serious cost pressures for businesses. This is not an encouraging picture for any expectation that inflation will return to 2% quickly."

　　Modified combination

　　Federal Reserve Chairman Powell warned Americans last week that the US will face a painful period of slower economic growth and rising unemployment as the Fed aggressively tightens monetary policy to quell inflation, which is at a near 40-year high. As interest rates continue to rise, the Fed will need an unlikely combination to keep these losses to a minimum.

　　Federal Reserve Governor Waller said in a research report released at the end of July: "We recognize that a significant decline in job openings without the economy falling into recession would be unprecedented... We're essentially saying that because the labor market is in an unprecedented situation, unprecedented things could happen."

　　Claudia Sahm, former Federal Reserve economist and founder of Sahm Consulting, said: "Normally, once the labor market goes downhill, it picks up speed and keeps going." As an economist, she created the "Sahm Rule" named after herself. The rule states that once the three-month average unemployment rate rises 0.5 percentage points from its recent low, the economy is already in recession.

　　However, given the bizarre performance of the labor market during the pandemic, Sahm is now open to the possibility of unexpected outcomes. Her baseline scenario is that the unemployment rate rises to around 4% and job losses are less than one million. But a lot needs to happen to achieve this. "It depends on supply chains recovering, more people returning to work, and consumers becoming more sensitive to prices, which is a normalization of the economy."

　　If this scenario does not occur and labor market pain intensifies, the Fed will have other options, such as raising its inflation target to 3%. Although this is not what the Fed wants so far. According to Joe Brusuelas, chief US economist at RSM Consulting, achieving a 3% inflation target would reduce 3.6 million jobs compared to sticking to the current 2% inflation target, while the unemployment rate would rise by more than 1 percentage point from current levels.

　　 spot gold Down to $1680

　　On the daily chart, gold has started a downward wave III from $1808, with support at the 38.2% target of $1658. Wave III is a sub-wave of the downward (C) wave that started at $2070. On the hourly chart, gold is expected to fall below $1680.