Non-farm data hides a "huge thunder"? The Fed's "unexpected" rate cut may occur!

2024-06-05 10:39

Goldman Sachs traders say that in the short term, the Fed is more likely to cut interest rates due to the deterioration of the U.S. labor market rather than deflation.

In the latest report, Goldman Sachs trader Cosimo Codacci-Pisanelli wrote, "In the short term, the Fed is more likely to cut interest rates due to the turmoil in the U.S. power market rather than deflation."

Pisanelli is not the only one who holds this view: Federal Reserve Chairman Powell himself agrees. After the FOMC meeting on May 1st, he was asked about the factors that could lead us to cut interest rates earlier, and Powell mentioned the 'unexpected' turmoil in the power market, and regulatory authorities also agreed with this point. He admitted that the possibility of issuing under such circumstances is very low.

But after yesterday's unexpected JOLTS announcement and last month's fading non-farm announcement, this "surprise" or consensus is about to be issued, and there is a very specific reason.

Despite recent statements by several Federal Reserve officials claiming that the labor market remains tight, in March, some market analysts warned that last year's US non-farm payroll data may have been overestimated by at least 800,000 (according to calculations by Capital City Press). Currently, new data from the Bureau of Labor Statistics shows that last year's non-farm job additions were generally overestimated by at least 730,000, which includes an adjustment of 1. The non-farm report shows that the business closure rate is higher than what is reflected in the non-farm report, and these factors were not taken into consideration.

According to our statistical data, the average annual employment growth rate in the United States in 2023 is 130,000, which is lower than the average of 230,000 shown in the non-farm payroll report. What's worse is that if we do not adopt the QCEW survey, the actual employment growth rate may be even worse, and the monthly increase in non-farm employment may be less than 100,000. As Anna Wang pointed out, if we take public transportation, the non-farm data for 2024 may be overestimated by at least 1 million by the end of this year - with more than half of the U.S. Bureau of Labor Statistics' error in modeling business formations and closures!

Of course, the highly politicized Bureau of Labor Statistics may not dare to boldly revise the data before the election. However, according to Anna Wong, "We will get the first wage revision clues at the end of August, covering the period from April 2023 to March 2024. This is likely to become a catalyst for the Fed to cut interest rates in September."