The most significant macroeconomic report of the week will be published on Friday, September 5th. We'll learn the key data regarding the US labor market growth in August. The NFP is always a big deal, but this time, its significance for the dollar is heightened, considering the context of preceding events, more specifically, due to the previous report, which reflected a weak gain of only 73,000 new jobs in July and simultaneously included a downward revision for the last two months (a cumulative loss of 258,000 jobs).
Last month's report was so explosive that Donald Trump fired Bureau of Labor Statistics chief Erica MacAnterfer, accusing her of manipulating and publishing "fake" data. According to the US President, the July report was deliberately "fabricated" to discredit both him, the current administration, and all Republicans in general.
A bit later, the President appointed A.J. Anthony as the new BLS commissioner. Anthony has repeatedly argued for transitioning to quarterly (rather than monthly) labor reports, maintaining that quarterly statistics would be "more accurate, though less timely." For now, however, the White House hasn't supported this idea, stating that it "hopes" the NFP release frequency will not change.
Thus, the importance of the August NFP report lies in its potential either to confirm or refute the trend toward a cooling labor market.
According to preliminary forecasts, US nonfarm employment is expected to grow by only 74,000 in August. The unemployment rate is expected to rise to 4.3% (the highest since last July). The wage growth gauge is likely to slow as well—preliminary estimates suggest average hourly earnings will decelerate to 3.8%. The labor force participation rate is also expected to decrease to 62.1%.
Leading indicators published earlier this week in the US (JOLTS data and the ADP report) came out "in the red," falling substantially short of forecasts.
For example, the July JOLTS came in at 7.18 million (the lowest since March 2021), while the forecast was 7.39 million. The indicator has fallen for two consecutive months. The ADP report showed a gain of only 54,000 private sector jobs, while the forecast was for 73,000. While ADP and official numbers do not always correlate, this is a very troubling signal, warning that the US labor market is cooling faster than expected.
Commenting on this weak result, a representative from ADP noted that the upward momentum seen earlier in the year has been "undermined by overall uncertainty." Recent weak data, according to ADP, is due to low business confidence, consumer caution, the impact of artificial intelligence, and, again, tariff uncertainty.
If the official data follows the ADP's trajectory, the dollar will come under heavy pressure.
Furthermore, the number of initial claims for unemployment benefits is slowly rising: according to the release, the weekly figure rose to 237,000 (vs. a forecast of 230,000). This is the highest reading since late June.
Another warning sign is the ISM Manufacturing employment component, which has remained in contraction territory for a seventh consecutive month. None of the six major manufacturing sectors reported hiring growth.
All this suggests that the August NFP could once again disappoint dollar bulls.
Moreover, the situation could get worse both "in the moment" and "in retrospect" if rumors of a revision to almost a year's worth of statistics (April 2024 to March of this year) are confirmed. In that case, the July NFP may seem like just a "foretaste" compared to possible "bitter pills" yet to come. According to Conference Board analysts, actual job growth will be 700,000-800,000 weaker than earlier estimates (other estimates go as high as a 900,000 shortfall).
A weak US labor market would open the door to two Fed rate cuts by year-end. Currently, markets are almost 100% confident of one cut (likely at the September meeting). The odds of a second cut are about 50/50. If the August NFP disappoints again, confidence will grow that the Fed will take a further step toward policy easing in October or December.
This is why the dollar can't currently find a clear direction: Friday's release has the potential to radically redraw the fundamental outlook for all major dollar pairs. If, contrary to all previous signals and forecasts, the NFP ends up in the "green zone" (especially considering the BLS leadership shakeup and the political importance attached to the NFP), the reaction could well be in favor of the greenback, with all the resulting implications.
The August NFP will define precisely where to place the crucial comma in this "to spare or to punish" moment.
