Author: Jin Shi Data

Beijing time Friday at 20:30, the U.S. Bureau of Labor Statistics will release the July non-farm payroll report, which is expected to further confirm the pattern of "low hiring, low layoffs" in the labor market.

The market focus is no longer just on the number of new jobs added but also on the labor force participation rate, wage growth, and which industries the job growth primarily comes from. This data will provide the Federal Reserve with important evidence for assessing economic resilience and future interest rate paths.

July employment may continue moderate growth, paving the way for the Federal Reserve to focus on inflation

Economists expect that the number of non-farm jobs in the U.S. will increase by about 80,000 in July, slightly higher than June's 57,000, but still far below past normal levels.

In comparison, during the ten years before the pandemic and the period from 2022 to 2024, the average number of new jobs added in the U.S. was usually close to 200,000 per month.

Now, U.S. companies are significantly slowing down hiring.

On one hand, the war in Iran has led to rising energy prices, increasing operational costs for companies. Facing greater uncertainty, companies are more inclined to cut controllable costs, and hiring is the easiest part to adjust.

On the other hand, the tightening of immigration policies by the Trump administration has also reduced the labor supply, making it more difficult for companies to find talent even if they wish to expand hiring.

This past spring, U.S. employment had a brief rebound, with 214,000 new jobs added in March, but this momentum weakened significantly due to geopolitical conflicts, rising energy prices, and declining business confidence.

However, low hiring does not mean the job market is collapsing. The unemployment rate decreased slightly to 4.2% in June, and the market consensus expects it to maintain this level in July.

Data from Thursday showed that the scale of layoffs in the U.S. has dropped to the lowest level in two years, with initial jobless claims remaining below 200,000 for the third consecutive week, one of the lowest levels in nearly 60 years.

Federal Reserve's Lisa Cook stated that the current job market has achieved a balance of "low hiring, low layoffs." "Although hiring rates are low, the unemployment rate remains stable because layoffs are also infrequent," Cook said.

Compared to the unemployment rate, the changes in the labor force participation rate are more noteworthy. The labor force participation rate is expected to slightly rise to 61.6% in July. Previous data from June showed that the U.S. labor force participation rate had significantly dropped to 61.5%, the lowest level since March 2021. Excluding the pandemic's impact, this is the lowest level since June 1976.

Among them, the participation rate of the core working-age population aged 25 to 54 has also significantly declined, hitting the lowest level since December 2023 and recording the largest monthly drop since the pandemic.

Economists will closely monitor whether this change is due to seasonal factors and statistical volatility, or if it indicates deeper issues in the job market.

In terms of wages, the market expects that the average hourly wage in July will rise by 0.3% month-on-month, with a year-on-year growth rate maintaining around 3.5%. This growth rate is close to pre-pandemic levels and generally aligns with the Federal Reserve's 2% inflation target, not showing that wages are driving inflation up again.

Nela Richardson, chief economist at Automatic Data Processing (ADP), the largest wage data service provider in the U.S., stated that labor costs are currently not the main source of inflation pressure in the U.S.

At the same time, new job additions in the U.S. are increasingly concentrated in a few industries. The healthcare industry has become a major pillar of job growth this year, with hospitals, clinics, and related medical service organizations contributing over half of the new jobs since 2026.

However, in a healthy expansion cycle, almost all industries would increase hiring, but the U.S. has not seen such widespread recovery for nearly two years.

Citibank economist Veronica Clark wrote in a letter to clients: “Moderate employment data, coupled with the high likelihood of significant downward revisions to previous data, should ‘further refute the claim that the labor market is tightening and may become a source of inflation pressure.’”

She added that the slowing labor market paves the way for Federal Reserve officials to focus on inflation data when making interest rate decisions.

Heather Long, chief economist at the Navy Federal Credit Union, pointed out that it is reasonable for the Federal Reserve to focus on inflation right now, but it still needs to pay attention to whether the economy can create enough development opportunities for young people.

The Federal Reserve will focus on inflation, gold stubbornly defends $4000 in anticipation of a rebound?

Although the employment report is an important reference for the Federal Reserve to observe the economy, it may not change the policy direction in the short term.

Federal Reserve Chairman Kevin Warsh previously stated that the U.S. job market is currently in a “stable” state, and future policy focus will still depend on the trend of inflation.

Some officials even believe that if inflation remains high, the possibility of future interest rate hikes cannot be ruled out.

However, some market institutions have already begun to bet that if the job market continues to weaken, the Federal Reserve may shift back to lowering interest rates.

Citibank economists believe that although current employment data can still be described as “stable,” changes may occur in the coming months, with the unemployment rate expected to rise to over 4.5%, prompting the Federal Reserve to reconsider lowering interest rates.

Citibank expects the Federal Reserve to begin restoring interest rate cuts in the fourth quarter of this year, with a cumulative three cuts before January 2027.

Vanguard believes that its 401(k) retirement account data suggests that new job additions in the U.S. may only be 18,000 in July, showing significant weakness in the summer job market, and warns that this weakness may persist into the fall.

Vanguard economists state that the increase in labor market exits reflects weak hiring, particularly affecting younger workers. As some who exited the labor market seek jobs again, while corporate hiring remains slow, the unemployment rate may face upward pressure in the future.

According to the CME FedWatch Tool data, traders currently expect a 55% probability of a Federal Reserve interest rate hike in September, down from 63% a week ago.

Matt Simpson, a senior analyst at StoneX, believes that regardless of how non-farm data performs, $4000 has proven to be a solid bottom for gold. “I suspect the bulls are waiting for a price pullback to adjust upwards to around $4600. In the short term, non-farm data may bring some noise, but price trends have shown that gold seems eager for a rebound.”

Marex noted in a monthly report that “as we enter August, we have become more optimistic about gold, expecting the trading range to widen⁠.”