CITIC Securities comments on the August 2025 U.S. non-farm data: Weak non-farm solidifies interest rate cut expectations

According to the Zhitong Finance APP, Guotai Junan Securities released a research report stating that the U.S. non-farm payrolls in August significantly fell short of expectations, indicating a weak supply-demand balance in the U.S. labor market. Companies have not yet engaged in large-scale layoffs or significantly reduced working hours, but employees are increasingly finding it difficult to quickly secure new jobs after unemployment, resulting in a fragile "tight balance" state. The institution believes that the U.S. labor market may maintain this tight balance for some time. The weak employment data in August may pave the way for a rate cut in September, but whether a series of rate cuts can be initiated after September remains highly uncertain.

Guotai Junan's main points are as follows:

August Non-Farm Payrolls: Significantly weaker than expected. The U.S. added only 22,000 non-farm jobs in August, which is significantly below market expectations. Additionally, the non-farm payrolls for June and July were revised down by a total of 21,000 jobs. Specifically, the June data was further revised down by 27,000 to -13,000, marking the first negative non-farm job growth since December 2020, while the July data was revised up by 6,000 to 79,000.

U.S. Labor Market: Fragile tight balance. The "balance" is reflected in: first, the unemployment rate has not significantly exceeded market expectations despite a rebound in the labor participation rate; second, the forward-looking average weekly hours worked remains stable. The fragility is evident in: first, the proportion of long-term unemployed individuals has further increased; second, the distribution of new jobs in the private sector is relatively concentrated. In summary, the current U.S. labor market shows weak supply and demand, with companies not yet engaging in large-scale layoffs or significantly reducing working hours, but employees are increasingly finding it difficult to quickly secure new jobs.

Will the tight balance be broken in the future? Historically, the initial value of non-farm job additions in August has mostly shown weakness and is usually revised upward in subsequent months. Moreover, the current U.S. unemployment claims data has not shown significant deterioration. With the Federal Reserve's rate cuts supporting the economy, the U.S. labor market may still maintain a tight balance for some time.

Federal Reserve: High probability of a 25 basis point rate cut in September. The weak employment data in August may pave the way for a rate cut in September. Even if the inflation data in August exceeds expectations to some extent, it may be interpreted as a one-time shock due to tariffs and could be temporarily overlooked, making it unlikely to significantly hinder a rate cut in September. However, whether a series of rate cuts can be initiated after September remains highly uncertain, and attention should be paid to subsequent employment and inflation data.

Risk Warning: Escalating political pressure from Trump further threatens the independence of the Federal Reserve; non-linear deterioration of the U.S. unemployment rate