U.S. employment data for July shows signs of weakening, putting downward pressure on bond yields and the USD.

July's employment only increased by 73,000, the unemployment rate rose slightly to 4.2%, alongside significant negative revisions to previous data, reflecting a slowdown in the U.S. labor market.

MAIN CONTENT

  • July job growth was lower than expected with 73,000 new jobs.

  • Unemployment rose slightly from 4.1% to 4.2%, raising concerns about the health of the labor market.

  • Data for May and June was significantly revised down, affecting monetary policy expectations.

What does the July employment data for the U.S. indicate?

The July employment data showed a low increase of 73,000 jobs, significantly down from expert expectations and analysis from leading economists in the U.S.

The slowdown in job growth in the context of a cooling labor market has raised concerns about the economy facing downward pressure. The unemployment rate's increase from 4.1% to 4.2% further indicates a moderate but notable weakening.

In addition, the U.S. Department of Labor also announced significant downward revisions to the employment data for May (from 144,000 to 19,000) and June (from 147,000 to 14,000), indicating that the labor market's weakness is even more severe than expected.

What is the impact of employment data on bond yields and the USD?

Weaker than expected data has put downward pressure on U.S. Treasury yields, with the 10-year bond yield dropping to 4.295% and the 2-year yield to 3.801%.

The USD also fell sharply after this information as investors gradually adjusted their expectations for a more accommodative monetary policy from the Federal Reserve. The decline in bond yields simultaneously reflects the trend of future interest rate cuts.

"The July employment data shows that the labor market can no longer maintain strong growth; this is an important signal for the Fed to consider easing policy," – said James Bullard, President of the St. Louis Fed, in August 2023.
James Bullard, President of the St. Louis Fed, 08/2023

Analyst Jinshi noted that these factors simultaneously reduce the value of the USD against other strong currencies, driving capital flows into riskier assets.

Analysis of Fed officials' views ahead of the employment data response

Before the employment data was released, some Fed officials like Waller and Bowman issued warnings about signs of weakness in the U.S. labor market.

This perspective reinforces a cautious stance for the next steps in monetary policy, leaning towards the possibility that the Fed will hold or slow the pace of interest rate increases to maintain economic stability.

"The latest economic data needs to be closely monitored to inform the next policy decision in line with price stability and support for the labor market." – Christopher Waller, Fed Member, August 2023.
Christopher Waller, Fed Member, 08/2023

Bond yield figures and their impact on monetary policy

U.S. Treasury yields for 10-year and 2-year bonds fell sharply after the employment report. This reflects investor expectations that the Fed may pause its monetary tightening or shift towards easing.

Index Before report After report Change 10-year bond yield Approximately 4.35% 4.295% Decrease 0.055 percentage points 2-year bond yield Approximately 3.85% 3.801% Decrease 0.049 percentage points Unemployment rate 4.1% 4.2% Increase 0.1 percentage points New jobs for July Expected over 100,000 73,000 Below expectations

Frequently asked questions

How do weak employment data affect U.S. monetary policy?

Weak data increases the likelihood that the Fed will adjust its easing policy or halt interest rate increases to support economic growth and reduce pressure on the labor market.

What does a slight rise in unemployment mean?

The slight rise in unemployment reflects a moderate decline in labor demand, which needs to be closely monitored to assess overall economic health and policy adjustment potential.

What impact does the decline in U.S. bond yields have on the market?

A decrease in yields typically drives money into riskier assets, weakening the USD and contributing to lower borrowing costs for businesses and individuals.

How do Fed officials view the July employment data?

Many Fed officials expressed caution, stating that close monitoring of labor market developments is necessary to make appropriate policy decisions.

What does the revision of previous months' employment data signify?

The significant downward revision of previous months' data indicates that the labor market is more challenging than expected, directly impacting monetary policy expectations.

Source: https://tintucbitcoin.com/non-farm-payroll-xac-nhan-cat-giam-lai-suat/

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