CMS Macro: Non-farm data gap, September rate cut expectations return

According to the Zhitong Finance APP, China Merchants Securities released a research report stating that the non-farm payroll data for July in the United States was significantly lower than expected, and the previous value was sharply revised downwards, reflecting that the cooling of labor market demand is faster than the supply side. Among them, the government sector shifted from a contributing factor to a drag, while both manufacturing and business services showed weakness. After the data was released, the expectation of a Federal Reserve rate cut in September returned in overseas markets, and the momentum of the US dollar index rebounded and fell back to around 98.9. The US Treasury yield curve showed a significant downward trend, with the 2-year Treasury yield, sensitive to Federal Reserve policy, falling 22.6 basis points to around 3.7%. The three major US stock indices all adjusted.

The main viewpoints of China Merchants Securities are as follows:

Event: On August 1, 2025, the U.S. Bureau of Labor Statistics (BLS) released: In July 2025, the non-farm employment increased by 73,000, down from the previous value of 147,000; the unemployment rate recorded at 4.2%, up from the previous value of 4.1%.

1. In July, non-farm employment increased by 73,000, lower than the market expectation of 104,000, and the previous month's data was significantly revised down, with June's non-farm employment data sharply revised from the initial value of 147,000 to 14,000, and May's data revised down from 144,000 to 19,000, totaling a downward revision of 258,000.

2) By industry, manufacturing, business services, and the government sector all showed weakness. The government sector recorded -10,000 (previous value 11,000), with the federal government’s decline expanding to -12,000 (previous value -9,000), still reflecting the lagging impact of the BLS's previous inclusion of those continuously receiving severance pay in the employment figures; state government recorded 5,000 (previous value 10,000), and local government recorded -3,000 (previous value 10,000). Business services recorded -14,000 (previous value -11,000), and temporary support services recorded -44,000 (previous value -30,000). Manufacturing continued to record a significant decline of -11,000 (previous value -15,000). The industries performing relatively well include retail and educational healthcare services, with retail significantly rising to 16,000 (previous value -14,000), and healthcare and social assistance increasing to 73,000 (previous value 59,000). The leisure and hospitality industry added only 5,000 (previous value 4,000).

In comparison with the JOLTS data released this Tuesday, the job vacancy rate slightly fell to 4.4% (previous value 4.6%), with a decrease in job vacancies in the accommodation and food services, healthcare and social assistance, and financial insurance industries, while job vacancies in retail, information, and state and local governments increased.

3) From the household survey data, the cooling of demand is faster than the decline in supply, with the unemployment rate rebounding to 4.2% (previous value 4.1%). The labor participation rate has declined for three consecutive months, recording 62.2% (previous value 62.3%), reflecting a reduction in labor supply after changes in immigration policy, with the participation rate for those aged 25-54 falling to 83.4% (previous value 83.5%). The U3 unemployment rate in July slightly rebounded to 4.2% (previous value 4.1%), while the U6 unemployment rate, covering the broadest range of workers, rebounded to 7.9% (previous value 7.7%). By ethnicity, the unemployment rate for whites slightly rose to 3.7% (previous value 3.6%), for Asians rose to 3.9% (previous value 3.5%), and for blacks rose significantly to 7.2% (previous value 6.8%) 4) The hourly wage growth continues to cool, at 3.7% year-on-year (previous value 3.8%), and slows to 0.2% month-on-month (previous value 0.4%). The average weekly working hours in the private sector recorded 34.3 hours (previous value 34.2 hours), still at a relatively weak level.

Due to the non-farm data this period being below expectations and the previous value experiencing a significant downward revision, the momentum of the US dollar index reversed, falling sharply to around 98.9. Before the data release, the dollar index briefly rose above 100 due to factors such as the pressure on the fundamentals of other economies after the tariffs were implemented, the US second-quarter GDP growth unexpectedly recorded 3.0%, and the core PCE data being relatively strong.

CME shows that the overseas market's expectations for the Federal Reserve's interest rate cut in September have returned, with the policy-sensitive 2-year US Treasury yield falling sharply by 22.6 basis points to around 3.7%, and the 10-year US Treasury yield falling to around 4.2%. The three major US stock indices adjusted, with the Nasdaq down 2% to around 20,703 points, the Dow down 1.4% to around 43,517 points, and the S&P down 1.5% to around 6,240 points.

Risk Warning: Overseas policies