An OCBC market analyst report points out that data of new US jobs for the month of August have failed to meet expectations, with the American economy seeing an addition of only 22,000 jobs in the month — “sharply” below the consensus forecast of 75,000 jobs.
The report, put out by OCBC Investment Strategy’s managing director, Vasu Menon, notes that payrolls have come in below 100,000 jobs for four straight months, the weakest stretch of job growth since the pandemic.
He writes: “More than that, the June figure which was already dismal at 14,000 was revised down significantly to a decline of 13,000, marking the first time the US economy lost jobs in four years. Elsewhere, the jobless rate rose to 4.3%, the highest level since 2021.”
Despite the weak August US jobs data however, Menon notes that stocks on Wall Street “interestingly” closed higher on Sept 5.
“This is because the data led the US Federal Reserve (US Fed) fund futures market to price in with near certainty that the US central bank would cut its benchmark interest rate by 25 basis points (bps) when its policy-setting committee (FOMC) meets [during] Sept 16 to 17. The futures market is also anticipating more rate cuts this and next year,” writes Menon.
He sees that it is unclear if the US Fed will undertake consecutive rate cuts as it did between September and December last year following the series of underperforming jobs data between June and August 2024
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Menon writes: “Much depends on how tariffs will impact inflation data in the coming months, starting with the August consumer price index (CPI) figures due this Thursday, Sept 11. The US Fed has expressed worries that tariffs could fuel persistent inflation, but for now US Fed Chairman Jerome Powell seems more worried about the labour market.”
Meanwhile, inflation has stayed “well-behaved” thus far, due to several factors including weak oil prices, which have fallen by nearly 18% since the recent high in June.
Over the weekend, the Organization of the Petroleum Exporting Countries (OPEC+) announced an increase in production, adding about 137,000 barrels of oil per day from October. Menon sees this as “welcome news” for investment markets, noting that production increases by OPEC+ have contributed to the sharp pullback in oil prices.
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“In the week ahead - investors will also be on the lookout for the annual revisions to a longer series of employment data by US Bureau of Labor Statistics (BLS) — scheduled for release on Sept 9,” adds the managing director.
The BLS will provide the first look at potential revisions to payroll growth data for the period April 2024 to March 2025. A large downward revision was seen in the previous year, with concerns that a similar pattern may emerge once again this year, which could worry the US Fed, Menon notes.
He writes: “There will no doubt be occasional market pullbacks and continued volatility. However, these have become fixtures in a complex and fast changing investment landscape - but they are not reasons to stay away from markets.”
Menon notes that for investors with a “decent risk appetite” and who are prepared to take a medium-term view with their investments, patience can pay off.
He writes: “The current bull market started at the start of 2023, and it has just gone past the 2.5-year mark. History shows that barring unforeseen circumstances and based on averages, the bull can continue for a few more years.”
A critical factor to the sustainability of the bull market, he adds, is whether the US will slip into a recession. Based on Sahm’s rule, which indicates early months of recession should the three-month moving average of the national unemployment rate fall 0.5 percentage points (ppts) or more above its low over the prior twelve months, there are still no signs of a recession for now.
Therefore, although Meonon anticipates a significant slowdown in the US economy this year, he does not see a recession yet.
He concludes: “On our forecast, US economic growth is projected to ease from 2.8% last year to 1.6% this year and stay at 1.6% in 2026. As such, investors should stay invested and continue to manage risk through diversification, dollar cost averaging and a focus on quality.”
