The release of US Non-Farm Payrolls has typically been the biggest risk event on the calendar, and this week’s is no exception. After the surprise pivot by Fed Chair Powell at Jackson Hole, there is huge focus on this report, with the risk for the FOMC of a softer labour market now trumping tariff-induced higher inflation. The massive downward revisions to the May and June headline numbers sent shockwaves across markets, and there is even some speculation that we could get a negative print. The key question is whether we see more follow-through after the recent collapse in employment growth, or whether that was a one-off statistical quirk.
Consensus expects 75,000 nonfarm payrolls to be added to the US economy in August. This is marginally lower than the 73,000 job gains in the prior month. Revisions will be front and centre, to gauge downside risks after the ones in May and June of 258k, which saw the three-month average fall to just 35k. Adjustments come down to the fact economists reckon that only 60% of survey respondents are answering within the first month. The unemployment rate is seen rising to 4.3% from 4.2%, which is still below the Fed end-2025 projection of 4.5%. Average earnings are seen rising +0.3% m/m, matching the July figure, and average workweek hours are expected to be unchanged at 34.3hrs. We note the prior household survey was weaker still, continuing a trend seen over the past year. In fact, if participation had not fallen over the period, the unemployment rate would now be above 4.5%.
Employment indicators and other factors
The US labour market is increasingly looking as though it is stalling out and susceptible to downside risks. Over the remainder of 2025, weak growth in employment is expected to see the unemployment rate trend up. That’s because lead indicators like soft business surveys and job vacancy numbers suggest that July through to September is a crucial period that could see much weaker data. Weekly initial jobless claims figures have remained within their range of recent years, but continuing claims are moving up, also pointing to a cooler labour market.
Fed policy and money market pricing
Investors now expect a 25bps Fed rate cut in September following Chair Powell’s warning at Jackson Hole on rising labour market risks. Powell highlighted downside employment risks, including potential layoffs and higher unemployment, signalling an easing bias. That means the bar to not cutting rates is high.
Money markets are currently pricing a 90% probability of a 25bps cut on September 17, that’s versus around 75% before Powell’s Jackson Hole speech. Through to the end of the year, traders are now fully discounting two rate reductions with a total 57bps in the final three Fed meetings in September, October and December.
Market reaction
A weak report could see the chance of a 50bps Fed move in a few weeks ramp up with closer to a 50:50 possibility of a third rate reduction this year. Downside levels in the Dollar Index include the late July lows at 97.10/18 and then the multi-year trough at 96.37 posted at the start of July. The 50-day SMA sits at 98.02 and has proved a pivot point in recent weeks. The 100-day SMA resides just above current prices at 98.71. Gold would likely rise while stocks could fall if there are doubts about the overall health of the US economy. It seems we would need to see a blowout report to stop a September cut.